The National Museum of American Jewish History filed for Chapter 11 bankruptcy protection Monday, seeking relief from what museum officials characterize as a crushing debt burden incurred by construction of its home on Independence Mall a decade ago.
In papers filed with U.S. Bankruptcy Court in Philadelphia, the museum said that it owed a little more than $30 million to bondholders and about $500,000 to unsecured creditors.
The Bridgehampton National Bank on Long Island holds about $16.4 million of the museum’s debt; a group of donors and lenders, many of whom backed the museum’s mall construction, holds about $14 million.
“Our museum, since it’s open, has been lugging around over $30 million of debt, and it is a weight on our shoulders that we have to get rid of,” Phil Darivoff, chair of the museum’s board of trustees, said. “It affects the way donors look at us. It affects our confidence in our future. And frankly, the debt service is too big a burden for us.”
Officials said that the bankruptcy proceedings would not affect museum operations or staffing.
Lawrence G. McMichael, the Dilworth, Paxson bankruptcy attorney who handled the Philadelphia Orchestra bankruptcy a few years ago and is representing the Jewish museum, said he wanted to get the museum in and out of bankruptcy court as quickly as possible, about six months.
“The museum has more debt than it can sustain,” McMichael said. “And that has a lot of negative implications for a nonprofit. It’s really no different than other nonprofits I’ve taken through Chapter 11 in Philadelphia, in the sense that what happens when a nonprofit has more debt than they can reasonably ever repay, donors start to get cold feet and they back off of it.”
That, he said, fuels “a proverbially vicious cycle, and the only way to deal with it, ultimately, is to resolve things through a Chapter 11. That’s what Chapter 11 is there to do.”
The museum is known for its unusual, sometimes quirky, exhibitions, everything from a big overview of Leonard Bernstein in 2018 to Ruth Bader Ginsburg and “Sara Berman’s Closet” in 2019.
Officials emphasized that the museum will remain open during the bankruptcy proceedings and all programming will continue as planned.
In essence, the filing places the museum under court protection, holding creditors at bay while at the same time negotiating a financial and operating plan. At the end, McMichael noted, the bondholders will walk away with some portion of their principal; the museum will walk away with its existence and reduced debt obligations.
Fundraising for the museum hit a recent high of $7.4 million in fiscal 2017, according to audited financial statements. That fell to $5.9 million in 2018 and an unaudited $4.8 million in 2019. Total revenue has fallen from a recent high of $9.4 million in 2017 to $6.3 million in 2019. Attendance has followed a similar path. In 2017 it hit 108,745; by 2019 it had dropped to 82,950.
Darivoff said that the museum has been paying about 20% of its budget in interest payments every year. The decision to file for bankruptcy was prompted by the expectation that it would lead to “a reduction in debt that will create a new level of sustainability.”
“Our budget is around seven-and-a-half to $8 million, and we have $30 million of debt, and that is just too huge a number and we have to deal with that,” he said. “The entire board is with this plan. We feel this is something we must do.”
What has particularly focused the attention of the board, Darivoff said, is the fact that a large balloon payment looms. In July 2022, the $16 million-plus bond held by the Bridgehampton National Bank will come due.
The museum has been negotiating with the bank to restructure the bond payments, but those talks have been fruitless. In August of last year, the museum did not pay the interest obligation on the bonds, according to court records. The bank countered with a demand for immediate repayment of the full amount.
No payment has been forthcoming, putting the museum in default.
“We've been negotiating with our creditors,” said Darivoff. “We just reached a point where we felt that this [bankruptcy filing] was the way to get the best terms for the museum.”
The situation of the museum is not unfamiliar on the Philadelphia cultural landscape.
In fact, almost the exact scenario played out with the Please Touch Museum, which filed for bankruptcy in 2015. With Please Touch, the debt obligation was much larger — about $60 million.
It incurred the debt after moving from a small space on North 21st Street to the dramatic, but dilapidated, city-owned Memorial Hall in Fairmount Park.
Please Touch could not generate the revenue to cover its operations and debt burden from extensive renovation and construction. It exited bankruptcy in 2016 with a significant debt reduction and a refocused mission.
Similarly, the Jewish museum was operating in a small exhibition venue on North Fourth Street, behind Congregation Mikveh Israel. But in the early 2000s, many supporters of the museum urged an expanded space and a more robust programming schedule.
A $150 million construction and endowment campaign ensued, running headfirst into the Great Recession. But the museum broke ground anyway and opened in its radically expanded home at Fifth and Market Streets in 2010.
In 2012, less than two years later, The Inquirer reported that membership and visitor numbers were falling and that the museum’s initial optimistic attendance forecasts were widely off the mark. In 2017, the museum said it was eliminating 18 positions through layoffs and attrition.
According to Monday’s court filing, the museum now employs 25 full-time staff members and six full-time hourly workers. All are nonunion.
Court records describe the situation dryly: “Since opening in 2010, the museum’s revenues from gate receipts and events have not reached the levels expected.”
Last year, chief executive Ivy L. Barsky resigned. Misha Galperin, a New York-based financial and management consultant, has been named interim chief executive in the wake of Barsky’s departure.
Given such problems, Darivoff was asked if the institution regretted the move out of its manageable quarters behind Mikveh Israel into the big six-story show on Independence Mall.
“I don’t regret it; I applaud it,” he said.