Please Touch Museum feeling pain from debt load

The new Please Touch Museum has won adoration from 6-year-olds and other important critics, and its move to Memorial Hall undoubtedly kept a rare architectural artifact of the 1876 Centennial Exposition from sliding into irretrievable decrepitude.

But a little more than two years after moving from its small-scale Center City home to more expansive - and expensive - digs in Fairmount Park, the Please Touch Museum is struggling with a dip in membership and attendance and with debt payments that are large and growing.

Debt was expected, but the difficulty in handling it stems, in part, from the museum's failure to meet its fund-raising goal of $88 million. After opening day in October 2008, fund-raising nearly stopped and the Please Touch fell $21.5 million shy of its target.

The shortfall set off a series of events that the museum says has thwarted its ability to manage the $60 million debt assumed through a bond issue raised on the museum's behalf by the Philadelphia Authority for Industrial Development.

The museum had planned to offset the $60 million IOU by adding the anticipated $21.5 million to a special reserve fund, where it would have grown (at rates higher than those that can be expected in this recession or postrecession era).

Part of the unraised $21.5 million included $5.5 million that museum officials hoped would come from the sale of the museum's old facility, on 21st Street near the Franklin Institute. Like many a homeowner in this economy, they know they may have to settle for less.

The museum's annual debt payments on its new home are not only large for an organization of Please Touch's size, at $3.37 million this year (the museum's operating budget is $9 million annually), but are also on a schedule to grow each year, topping out at $5.65 million.

The museum's answer to its mounting financial pressures: It will raise money.

"We're looking for major gifts to raise the money we need so our future is secure," says Laura Foster, president and chief executive officer. "We have so much appeal - the building, the history, the music and theater. We think we're very diverse."

The museum's financial condition has caught the attention of the investment community.

Museum bonds have continued to sell briskly in recent months on the secondary market. But now Standard and Poor's has lowered its outlook for Please Touch's bonds - which it rates "BBB-" - from stable to negative, citing debt, operating shortfalls, a very small endowment ($1.7 million), and doubt that higher attendance can be sustained.

Warns S&P's Jan. 12 report:

"The negative outlook reflects our concern that the museum's fund-raising is weaker than management had expected; in our view, it is critical that the museum complete the campaign in order to continue to pay debt service in a timely manner in the long term," which is more than five years.

"The rating or outlook may improve if the museum builds its resources and stabilizes operations, including budgeting and attendance projections. Conversely, we may lower the rating if financial resources continue to stagnate and operations do not return to break-even on a full-accrual basis."

Please Touch's financial challenges echo those of the Kimmel Center. Both were large projects built with a large percentage of government funding. Both opened with fund-raising incomplete, while leaders predicted the rest of the money would come in after donors could see the facility operating.

Both groups took out debt that soon became a drag on finances. The Kimmel solved its debt problem only after a group of local philanthropists and foundations chipped in money to pay it off.

Please Touch reported a $760,000 deficit in 2010, and the museum has failed to meet a bond covenant stipulating a certain ratio of debt to liquid assets, so it has been required to hire management consultants and place a year's worth of debt payments in care of a bank trustee.

An annual-giving program is being put in place. At the moment, only 10 percent of the museum's income each year comes from philanthropy, making it extremely reliant on the 90 percent that comes from admissions, rentals, and gift-shop sales.

Ideally, annual giving would change that ratio to 30 percent contributed and 70 percent earned.

The unraised $21.5 million target is being expanded into a new Campaign for Success and Sustainability.

The goal: $30 million.

This would allow the museum to proceed with its original plan of making payments on the $60 million debt through 2036 while growing a reserve fund.

"What we're saying is that we would really hope that you support the museum now rather than contributing to saving us later," says Concetta Bencivenga, the museum's executive vice president. "We would be able to satisfy the debt by 2036, and then the museum would continue to operate as we do while the fund grows."

Both membership and attendance spiked after opening, but have since fallen. The year after opening day drew 687,000 visitors, but in 2010 the total dropped to 562,000.

Membership rose with the new building to nearly 17,000. It fell below 10,000 the second year but is moving back up, at 12,000, leaders say.

Gate revenue, which doesn't necessarily correlate with membership numbers if an organization is selling deeply discounted memberships, is also on the way up, they say.

The museum feels it could be doing a better job of attracting families from Bucks County and the western Main Line.

Please Touch leaders say there are reasons to support the museum that reverberate beyond Fairmount Park to the greater arts and culture community. Children who visit are learning a lifelong habit of patronizing museums and other institutions.

Says Foster: "We have taken a lot of the arts out of schools and out of children's lives, and for them to be able to come here and experience live music, theater, and art - we're putting it back in children's lives. We know that learning these things in early childhood really sets the stage."