Despite orchestra truce, ills remain

The Philadelphia Orchestra Association's proposed labor truce with musicians may mark significant progress, but it is only one of several critical steps in the organization's long march toward exiting bankruptcy.

Significant battles threaten, and it still is not entirely clear what kind of an orchestra lies at the end of the process.

New legal chapters were proliferating at almost the exact moment Thursday that musicians were announcing reluctant approval of a severely concessionary four-year contract that outlines a 15 percent pay cut and steep reduction in the size of the fabled ensemble.

The Annenberg Foundation, the orchestra's largest donor, filed a limited objection to the orchestra's effort to obtain a $3.1 million loan to see it through the bankruptcy. The foundation is concerned about the orchestra's agreement with the lender, and is seeking protection of the money it has given to the orchestra - more than $50 million - so that it cannot be used for any other purpose than the orchestra activities specified by Annenberg.

The foundation may have the upper hand here, in no small part because it long ago reserved the right to revoke its gifts to the orchestra's endowment if the orchestra ever filed for bankruptcy. Such a withdrawal, of about $54 million, would devastate the orchestra's finances.

Simultaneously, the American Federation of Musicians and Employers' Pension Fund filed a similar objection in court.

More serious challenges may emerge. The deal with musicians is contingent on the Pension Benefit Guarantee Corp., a federal agency, agreeing to a "distress termination" of the current defined-benefit pension plan.

PBGC spokesman Jeffrey Speicher said the agency would formulate a legal response to the proposed contract.

"PBGC's primary mission is to protect pension plans. We always work with employers to keep their pension promises. But if they can't, we don't force them to keep pensions they can't afford. We will review the agreement and the orchestra's financial condition. We will then advise the bankruptcy court if ending the pension plan is justified."

The PBGC flexed its muscle in a similar case last week, announcing that it would fight Friendly Ice Cream Corp.'s efforts to shed pension obligations through the bankruptcy process.

"It looks like Friendly's and Sun Capital are trying to make their employees and retirees bear the brunt of the company's restructuring; the employees deserve better," PBGC director Josh Gotbaum said in a statement.

The PBGC has a stake in how the orchestra's pension question gets settled, since it not only insures the national pension plan, but also the internal pension plan that was frozen in 2004 when the orchestra association switched to the national plan.

The American Federation of Musicians and Employers' Pension Fund is stepping up its aggressive discovery into the orchestra's endowment to determine the extent to which that nest egg, valued at just under $120 million, would be available to the fund to make up for the loss of the association's participation. Fund leaders, who estimate the amount they are owed at $35 million, say that about $20 million of the orchestra's endowment may not be restricted by donor wishes - contrary to the association's claim.

In an escalation of the fund's legal campaign, it recently filed 16 motions to extract documentation from donors and possibly call them to the stand to ask questions about whether their donations came with the stipulation that the principal never be spent.

The association says it spent all of its unrestricted endowment in the months and years leading up to its April 16 bankruptcy filing.

Dragging donors into a legal case is probably the last thing any charity wants to do, as an association lawyer's discomfort was communicated in a recent hearing. Anne M. Aaronson suggested that the fund's actions constituted "harassment or a vindictive act" against the association.

It's not clear whether burgeoning litigation from the fund will be solved as part of a bankruptcy settlement plan, or outlive it.

Either way, orchestra leaders say that critical fund-raising has been hobbled by the spectacle of a deeply riven organization.

Players held their noses as they approved a new contract, issuing what could hardly be called a conciliatory statement. "It is the self-admitted failures of management and the board that have led us to this point, and we challenge them to make the changes needed to raise the funds necessary to operate and promote the orchestra with the same passion with which we create music," said John Koen, cellist and chairman of the players' negotiating team.

Just as significant was what musicians didn't say. No mention was made of the fact that a few weeks ago they publicly rejected the orchestra's strategic plan. Musicians voiced no specific objections, but their concerns revolve around doubts that this orchestra will continue to be great under the terms of a labor deal of deep cuts and curtailed benefits.

Can the orchestra still draw the best talent with a contract less competitive than those at the orchestras of New York, Chicago, Boston, and Cleveland? Will musicians currently on the fence decide to stay, or leave? Can the ensemble still sound rich and homogeneous with 10 fewer players?

And will an orchestra of lower stature - a discomfitting concept in Philadelphia - attract donors who want to put their greatest generosity toward only groups of the highest quality?

If the orchestra is to prove its worth of the $160 million or so needed to secure the future, musicians will have to issue a full-throated endorsement of a presumably altered strategic plan.