WASHINGTON (AP) -- In five years since moving to its new home overlooking the U.S. Capitol, the Newseum has become a major attraction with 4 million people visiting its exhibits about journalism and the First Amendment. Yet it's been struggling mightily to cover its costs.
Public financial documents reviewed by The Associated Press show revenue fell short of expenses by millions of dollars in 2009, 2010 and 2011. Its parent organization, the Freedom Forum, has used its endowment to provide the bulk of the Newseum's operating revenue since its creation, and the endowment's principal value has steadily declined from $600 million to about $373 million at the end of 2011.
Nonprofit management consultants say it's worrisome for a museum to be relying so heavily on a shrinking endowment, but the Newseum's top executive says it's not in financial trouble.
To rein in costs, the Newseum imposed four rounds of staff layoffs since 2008, most recently in January, and slashed employee retirement contributions. The Newseum is also reorganizing its educational programs under a separate nonprofit organization. Meanwhile, compensation for its chief executives struck some experts as overly generous.
"We've certainly worked on tightening up on expenditures. We certainly are going to be working on additional fundraising initiatives," President and CEO James Duff said in an interview. "I think we're making good progress. And certainly our numbers are very, very encouraging."
The Newseum is Washington's most expensive museum, charging $22 for adults and $13 for youth, though many other attractions are able to offer free admission because they're taxpayer-funded. It has drawn more visitors each year since it moved to its current location, including 817,000 in 2012. A spokesman said its visitor count is expected to grow again by 5 to 10 percent this year.
Still, the museum's heavy reliance on the Freedom Forum's endowment concerned several museum management consultants interviewed about the situation. In 2011, the endowment provided nearly half the Newseum's $63.7 million revenue. In 2010, it was more than half.
Museums with healthy balance sheets would generally draw 20 to 30 percent of their revenue from an endowment, said Barry Lord, co-president of the museum consultancy Lord Cultural Resources. Such revenue would usually come from interest on an endowment, not its principal. Another 35 percent of revenue would come from admissions, facility rentals and sales, and the remaining 35 percent would come from membership sales and additional fundraising.
In 2011, the Newseum received about 8 percent of the Freedom Forum's net assets, and the endowment also spent millions on other programs.
"That I would consider a red flag because they are basically using the principal of the endowment, to some degree, to pay for operations," said consultant David Ellis, a past president of the Museum of Science in Boston and of Lafayette College. "To be sustainable, it's crucial that the draw on the endowment, the amount that is spent ... needs to be realistic in terms of the endowment maintaining its purchasing power."
Most museums have been struggling in recent years since the Great Recession, Ellis said. Many are contending with rising expenses and must find ways to increase revenue.
As part of its reorganization, the museum launched the Newseum Institute recently to reach more people in schools nationwide, to become more efficient and to create more fundraising potential around its First Amendment initiatives.
The institute will encompass programs that have been based separately at Vanderbilt University in Tennessee, the University of South Dakota, and the University of Mississippi.
Duff, a lawyer who joined the Newseum as CEO in 2011, said the new institute can serve a critical need to improve civic education.
"Thomas Jefferson said that the best way to preserve our liberties is to have an educated public. We really believe that that's the case," he said. "We're positioning ourselves to be a national leader in that regard."
Annual surveys tracking knowledge of the First Amendment show attitudes toward those freedoms often change based on fear over national security or other factors, said Gene Policinski, a veteran journalist who will be the new institute's chief operating officer.
"Knowledge is just not where it should be about freedoms we've had for 220-plus years," he said. "So I worry about freedoms not known. Freedoms not exercised can be lost."
The museum traces its origins to the creation of the Freedom Forum in 1991 as a successor to the Gannett Co.'s foundation. USA Today founder Allen Neuharth opened the Newseum in 1997 in a smaller $50 million space with free admission in neighboring Arlington, Va. That location closed in 2002 as officials began planning for a much larger $450 million museum on Washington's Pennsylvania Avenue, situated between the White House and Capitol.
In 2011, admission fees covered about $7.1 million of the Newseum's $71.3 million in operating expenses. The Freedom Forum provided about $30 million, and other gifts or grants contributed $2.65 million. Facility rentals, catering and food court sales provided $14 million. That year, the museum recorded a loss of $7.6 million.
The Newseum recorded net assets of nearly $102 million, including $19.8 million in savings. Newseum officials declined to provide any updated financial details from 2012.
For years, the Newseum was led by former journalists from Gannett and USA Today. In 2011, the Freedom Forum named Duff as its new chief executive. He had been chief administrative officer for the federal courts system after working for years as a law firm partner where he advised the Freedom Forum. He also worked for the Supreme Court in the past.
In his first few months at the Newseum, Duff was paid $1.6 million, including $133,000 in salary, a $50,000 bonus and $1.4 million in deferred compensation for retirement, according to the organization's 2011 IRS filing. The $1.4 million was a one-time payment. The outgoing Newseum chairman, Charles Overby, was paid $632,193 in 2011, including $390,000 in base salary, $129,000 in other compensation, $92,000 for retirement and other benefits.
By comparison, the much larger Smithsonian Institution lowered its executive compensation in 2007 when the former CEO was forced out amid outrage over his more than $900,000 in earnings and lavish spending. The current Smithsonian secretary was paid $556,562 for 2011, the most recent year of tax filings. Some of the outrage over the former secretary's pay was due to the fact that unlike the Newseum, the Smithsonian is mostly funded by taxpayer money.
The Newseum's compensation is unusual, Ellis said, because few executives in nonprofit management are given up-front deferred compensation.
Brett Zongker covers arts and culture for The Associated Press. Follow him on Twitter at https://twitter.com/DCArtBeat .
(Copyright 2013 by The Associated Press. All Rights Reserved.)
for more features.