News that Vashon Center for the Arts had quietly cashed out a $6 million trust that it had said for years would be the centerpiece of a fund to sustain operations at its new performance hall has surprised and even alarmed many islanders.
VCA leaders made the revelation after a town hall in February, more than three years after the termination of the 2008 charitable remainder annuity trust, established for VCA’s benefit by island philanthropist Kay White. The disclosure followed other acknowledgments about the organization’s financial health, including that income is falling substantially short of expenses to operate its new arts campus, which opened in 2016.
VCA officials have now offered several reasons for terminating the trust, including soaring construction costs for the center and concern the trust principal might plummet in a market downturn.
Kevin Hoffberg, a former board member who has led VCA since March, also published blog postings on VCA’s website in April and May saying that the organization needed the cash to build the 20,000-square-foot center in 2014 or it would lose $3 million in state and county funding for the project.
But a review of public records and interviews with state and county officials shows that at the time the trust was dissolved in 2014, the state funds were already on track to be renewed until 2017. Additionally, VCA did not apply for the county funding until 10 months after the trust had been dissolved.
After Hoffberg’s blog postings, The Beachcomber met with him, VCA artistic director Angela Gist, who was deputy director during much of the capital campaign, and former board member Scott Benner, an attorney whose practice includes investments and estate planning.
Molly Reed, VCA’s former director who spearheaded the capital campaign, declined to be interviewed. VCA also declined requests for minutes of a pertinent board meeting, VCA’s operating budgets for the past two years, and a copy of a 10-year plan, charting a path to a break-even operation, that Hoffberg said the board approved in 2014.
VCA did share nine years of its annual audited financial statements, a 2013 report from the manager of the $6 million trust and excerpts from the 2008 document creating the $6 million trust.
Hoffberg said that VCA currently has approximately $700,000 in cash, as well as $3 million of additional gifts and pledges to be received in the future. The nonprofit will also soon begin developing a strategic plan aimed at charting a path for VCA to become self-sustaining.
VCA has also launched a campaign to raise $875,000 in 2018 for a sustainability fund, Hoffberg said. So far, he added, the campaign has raised $430,000 in cash and pledges, although he declined to identify any of the donors.
“We do not have an endowment, but we have a decent amount of liquidity and enthusiastic donors who are still interested,” he said.
But recent news about the liquidation of White’s $6 million trust has had an impact on some donors.
Ray Aspiri, a well-known entrepreneur and donor to many island causes, characterized his current feelings for VCA as that of “disenchantment.”
“This is a serious watershed moment for an organization that has been a centerpiece for our Vashon Island community.”
Aspiri said that he and his wife Edith donated $50,000 to the building of the arts center, after being told that a sizable reserve fund existed to sustain the building.
“It was definitely represented as such, so it’s not just an issue with transparency, it comes closer to misrepresentation,” he said.
Without further transparency and proof of good governance, he added, “Those of us who have supported it in the past will not be doing so in the future. The artists have a major concern, the supporters are definitely concerned, and it’s going to take a tremendous change to regain the support they had in the past.”
White’s gift of the $6 million charitable remainder annuity trust was established in 2008.
Under the trust’s terms, White received a fixed, six-figure annual distribution.
The terms also allowed “early distributions” of up to $300,000 a year to VCA, at the discretion of White’s trustee. Financial records indicate VCA received a total of $1.4 million in these distributions between 2009 and 2013.
The trust’s remaining assets were to go to VCA after White’s death, which occurred in 2017. A year before the trust’s termination, its assets had a market value of $6.4 million, according to an October 2013 report from the trust’s manager.
Instead, the trust was terminated with White’s consent in November 2014. VCA’s 2014 audited financial report indicates that VCA received almost $3.79 million from the trust that year. All of the money went to construction costs, according to Susan Warner, VCA’s former executive director.
Scott Benner, a former VCA board member, said that it was an “unfair characterization” to say that VCA had made assertions the $6 million trust would be completely set aside to subsidize operations. According to an excerpt from the document that established the trust, VCA was indeed allowed to use the funds for construction and loan payments for the new arts center, as well as to subsidize operations.
“I don’t think we ever said we were going to have $6 million when we were done constructing this building,” Benner said.
“I think the whole community was struggling with some of the sophistication in the mix of resources andgrappling with the language here.”
However, records show VCA officials indicated repeatedly between 2009 and 2013 that most or all of the trust’s proceeds would be set aside to subsidize operations.
In public grant applications, Beachcomber articles and a notable blog posting on its own website, VCA officials estimated that income from White’s funds would help offset higher operating costs at the new arts center of at least $150,000 per year. (At the time, the organization was Vashon Allied Arts, or VAA. The name VCA is used throughout this article.)
The predictions of those higher costs have more than borne out — VCA’s application to 4Culture, King County’s arts agency, for operating support for 2017-18 included a 2016 operating budget that showed a $261,525 difference between income and expenditures.
For years, VCA had touted White’s $6 million trust as a big part of filling that kind of gap.
VCA mailed a full-color brochure, undated but with a timeline stretching from 2007 to 2012, to every island household. It said “what made White’s contributions invaluable to islanders is that the majority of her gift will serve as an operating reserve, not as building funds.” In a section describing project financing, the brochure listed $8 million as having been “secured” as that operating reserve.
A 2013 blog post on VCA’s website made reference to White’s $6 million trust.
“Why not use the money to fund the building’s construction instead?” the post read. “The majority of the sum is in a Charitable Remainder Annuity Trust, and at the donor’s direction will be used for long-term sustainability. This fund will serve as a valuable cushion to cover any future shortfalls and keep programs affordable.”
White’s trusts, including the $6 million one, were also described by VCA officials as a “quasi-endowment,” a “reserve fund,” or a “sustainability fund” in five Beachcomber articles published between 2011 and 2013.
In one article, published in 2012, Reed said both White and VCA had decided all the money in White’s trusts “has to be thought of as an operating reserve — so our local nonprofits have affordable access to the building and they, in turn, can keep ticket prices low …. People worry. But that is absolutely the plan.”
White’s trust was also mentioned in every grant for funding for the building that VCA received from the state and the county between 2009 and 2013.
A 2009 grant application to 4Culture detailed plans to put $3 million of White’s $6 million “angel pledge” into an endowment, which would generate $200,000 a year in income.
In 2012, in correspondence regarding a 2009 grant from Washington state, VCA wrote that $8 million dollars worth of gifts, which included the $6 million trust, would be set aside from the fundraising campaign “as an operating reserve once the new arts center is completed.”
In an application for a 2012 4Culture grant, VCA again underscored this point. After the organization gained access to the trust’s principal and paid off a building loan, VCA wrote, all remaining funds from the trust would be “conservatively invested and the interest will be used in subsequent years to supplement our operating budget and ensure that community groups will be able to use the facility at fees well below market rates.”
Gist told The Beachcomber, “All information we provided in the grant applications was based on the present situation and set of facts as we knew them at the time. She added, “Indeed, the landscape of the project changed frequently and quite rapidly.”
The price tag for the new building skyrocketed from an original estimate of $11 million when the project was announced in 2008. By the time construction began in 2015, amid a building boom in Seattle, it was reported that the facility would cost $20 million.
Hoffberg, Gist and Benner all cited these soaring costs as a rationale for VCA’s decision in fall 2014 to work with White and her attorney to restructure the trust and claim its cash.
“We might still not be built because construction costs have continued to rise,” Benner said.
Benner, Hoffberg and Gist also said that terminating the trust to get cash also gave VCA the financial resource it needed to secure a $2.5 million loan for the building — a crucial final step in the financing for construction. A previous plan to borrow money using the trust as collateral had not proved successful because VCA did not control the trust.
In a VCA blog post on April 22, Hoffberg said that another important reason the organization was spurred to terminate the trust was that it needed the money to start building or it would forfeit a $2 million appropriation from the state, made in 2013, and another $1 million grant from 4Culture.
“We were literally on a countdown clock to break ground by the end of 2014 or lose the $3 million in State and County grants,” Hoffberg wrote.
But the $1 million 4Culture grant wasn’t contingent on a 2014 construction start — because VCA didn’t have the grant yet. The program through which VCA received the money wasn’t announced by King County until July 2015, and VCA didn’t even apply for the money until September of that year, according to 4Culture.
After The Beachcomber presented Hoffberg with this information, he acknowledged in a May 22 blog post that his earlier statement about the grant was inaccurate, explaining, “Although we had been assured a $1 million grant from King County, we did not actually submit the paperwork until the fall of 2015.” In an interview, Gist also said the agency had told VCA the amount they were recommending for approval.
Deb Twersky, 4Culture’s acting executive director, said that the agency did encourage VCA to apply for the grant, but no one at King County could have told VCA in 2014 that it would be awarded $1 million.
As for the $2 million state appropriation, approved by the Legislature in 2013, it wasn’t due to expire until June 30, 2015. And by fall 2014 the state Commerce Department, designated by lawmakers to administer the grant, already had begun the process of asking the Legislature to extend it for another two years, a Commerce spokesperson said. The spokesperson added that such “re-appropriations” of unspent funds are routinely requested.
The re-appropriation of the funds for Vashon Center for the Arts was included in the 2015-2017 capital budget bills introduced in the House and Senate in January 2015, according to the spokesperson.
After The Beachcomber presented this information to Hoffberg, he wrote in the May 22 blog post that VCA had been “specifically notified” by Commerce in an Aug. 19, 2014, letter that it needed to spend the entire $2 million by June 30, 2015.
But the letter, provided to The Beachcomber by VCA, doesn’t say that. Instead, Commerce wrote that, if VCA thought it might not be able to spend all its grant by mid-2015, it should “read the funding guidelines on re-appropriations” and discuss the situation with the agency.
Hoffberg also wrote in his May blog post that VCA had been told by a “political ally” that the $2 million would not be re-appropriated. Hoffberg and Gist later identified that ally as state Sen. Sharon Nelson, D-Maury, and said Nelson had made the statement in a phone call to Reed in 2013, when the money was first appropriated.
When asked about the conversation, Nelson said, “I don’t recall that at all.” She suggested she did tell VCA in 2013 that unspent funds from a 2009 grant would not be renewed — but that was a separate, different kind of grant.
Benner said that as a board member, he did not know that the $2 million state appropriation, if unspent, was likely to be renewed — but any chance of losing the money was too high.
“If it doesn’t get re-appropriated, if there is even a significant minority risk of that, that’s not a risk you can take,” he said.
Benner also noted another reason the board decided to work with White to restructure the trust.
When he was brought onto the board in 2013, he was asked to review the investments in White’s $6 million trust and found it to be overly weighted in one sector.
Indeed, the trust report from 2013 shows that two-thirds of its value was invested in energy and raw materials. Half of its total assets were in just two stocks, Chevron and Exxon Mobil.
The trust’s assets, Benner said, were too exposed to the market overall and particularly to oil.
In 2013 and early 2014, he said, he looked at several market scenarios and realized that “under almost any scenario this trust was depleting, and it was going to keep depleting the longer things went on. And it could be really severe.”
Benner’s concerns about oil stocks played out later in 2014, when Saudi Arabia announced it would not limit oil production, sending oil stock prices falling sharply.
After he presented his concerns, Benner said, the board agreed in June 2014 to work with White and her advisers to terminate the trust — providing VCA not only with the cash it needed to secure a loan and begin construction, but also giving White more financial security.
Over the course of the next five months, VCA did just that — a process that included the purchase of two annuities for White that would replace the income she had received from the trust. White, Hoffberg said, gave her blessings to the plan.
By the end of the year, VCA had received its $3.79 million share of the assets of the terminated trust — providing VCA with the cash and collateral it needed to secure a $2.5 million loan for the project. Construction on the building began in April 2015.
Benner said strongly that he thought the board acted responsibly, believing there were significant resources — including White’s other trusts and planned bequest, as well as additional gifts and pledges — to sustain the organization. He also cited the board’s approval of a 10-year-plan to move forward toward that goal.
“I think we made a very reasonable decision about how do we mitigate risk, how do we deliver this building, and plan for its sustainability the best way we can,” he said.
So why not tell the public at the time that the trust it had heard about for so long had been terminated? Hoffberg, Gist and Benner all cited privacy concerns.
“I never heard the question raised about whether we should announce this,” Gist said. “Nobody said, ‘Should we talk to the public about this?’ I think it felt like a very personal interaction with Kay and her lawyer.”
“There was a general discussion of how to describe our campaign. We would do that all the time,” Benner said. But the facts relating to the the trust, he added, “were so perilous, we didn’t want to make that public. We still don’t.”
Some longtime supporters still question VCA’s decision to keep mum about the trust.
May Gerstle, who supported the building campaign, said she is now taking a wait-and-see approach with future donations.
“We gave less this year because we feel like we don’t know what is going on and how our money is being spent,” Gerstle said.
Other prominent islanders maintain strong support for the organization.
Jo Ann Bardeen, who is president of the board of Vashon Island Chorale, urged islanders to continue supporting VCA as it progresses beyond what she called “growing pains.” The arts center, she said, has encouraged island performers, including youth groups, to do their best work, and now she couldn’t imagine it not being there.
“We’ve just got to keep supporting it. I don’t see how anybody could not want to honor the generosity of KayWhite.”
“It was too big a gift to our community, and we need to be grateful,” she said
Twersky, with 4Culture, said she also hopes for a repair of any rift between VCA and the community.
“There are clearly good people with broken trust about this project, and I think it is a serious question for the island — what will happen to VCA — will there be support or abandonment?” she said. “I wonder what the future holds for all the nonprofit arts groups held hostage by this real estate and construction market. I hope that new things and new people and ideas can find a solution for VCA.”