IMAGE: Jonathan Hill

In May, Oregon Ballet Theatre announced it needed an immediate bailout to, in the words of Mayor Sam Adams, “keep [its] doors open.”

OBT publicly blamed its plight on a combination of the recession and the December 2008 snowstorm killing ticket sales for its usually popular Nutcracker performances.

Then came the rescue. OBT’s landlord at Keller Auditorium and the Newmark Theatre, the Metropolitan Exposition Recreation Commission, cut OBT’s user fees by $105,000. Dancers from across the country performed for free at a gala show June 12 to help. And with Adams’ aid, OBT supporters rallied to raise $853,000 to bail out the 20-year-old ballet, at least for the time being.

Now, according to a scathing letter WW obtained last week, another unsettling plot line has emerged about an institution that has powerful allies in the arts community and political circles.

The letter to OBT’s board by OBT historian Linda Besant says the bailout provided a welcome Band-Aid for the nonprofit’s budget, newly slashed to $4.8 million. But the letter—signed by 41 of OBT’s 56 staffers—also says stronger remedies, including the ouster of executive director Jon Ulsh, are needed.

“My fears for the company’s future remain acute.” Besant wrote Sept. 10. “[And] I do not feel he [Ulsh] can meet the scope of the position.”

Public documents show Besant has good reason to be concerned:

OBT began having serious financial troubles long before the current recession or the December 2008 snowstorm.

OBT’s position was so dire as early as June 2008 that its auditor issued what’s known as a “going concern” opinion—a giant red flag in accounting terms.

By the time OBT sought its bailout, current and former board members had already loaned or guaranteed loans to OBT totaling $469,000. Board members were also on the hook for hundreds of thousands more in pledges.

Nearly all nonprofits are suffering depressed charitable giving and customer spending. The Oregon Symphony, for instance, recently cut musicians’ pay 7.5 percent.

But documents show OBT’s finances tanked long before the economy collapsed. In the fiscal year ending June 2006, OBT’s tax return shows a $1.9 million loss. The following year, board members made extraordinary multi-year pledges totaling more than $500,000. Under accounting rules, the company legally booked those three-year pledges as if all the money came in the door in 2007. That boosted revenue for one year at the expense of future years. Still, OBT reported a $350,000 loss for the year ending June 2007. Over the two years, OBT also borrowed $1.6 million. Last year, the company lost another $1 million.

Despite those losses, OBT increased its budget every year, from $6.1 million in 2005 to $6.8 million in 2008.

Bill Manne, a Miller Nash partner who specializes in nonprofit law, says those numbers raise a question for OBT: “Every year you lost money, and every year you increased your budget—why did you do that?”

Board Treasurer Don Van Wart says OBT got caught up in the “euphoria” of boom times and banner reviews. Ulsh adds that he spent “90 percent” of his time putting out fires and rebuilding the organization.

The losses took a heavy toll. In an audit dated Oct. 21, 2008, accounting firm McDonald Jacobs noted that “current liabilities exceed current assets by approximately $1,277,000 and total liabilities excess total assets by approximately $526,000.” And the firm warned that OBT’s history of “sustained substantial operating losses in past years” and other problems “raise substantial doubt about the Organization’s ability to continue as a going concern.”

OBT’s more recent financial data for the first 10 months of fiscal 2009 show two things: First, contrary to its claim that the December storm was catastrophic, the figures showed 2009 year-to-date ticket sales were $2.93 million—only about $94,000 below budget.

Second, the real deficit was in contributions, where OBT was a full $1.2 million behind budget. But that should not have been any surprise. In 2008, OBT fell short of its fundraising target of $2.2 million by $650,000—suggesting its budget was unrealistic. Rather than reducing its 2009 goal to reflect worsening economic conditions, however, OBT raised its 2009 goal and through 10 months trailed even farther behind than last year.

OBT Board Vice Chair Kathleen Cosgrove says OBT fully and accurately communicated its position.

OBT failed to tell the public one other thing when it ascribed its budget problems to the recession and the snowstorm. Current and former board members had personally guaranteed a $300,000 bank credit line and loaned another $169,000 to the company. OBT used part of its $853,000 bailout to reduce borrowings on the credit line by $200,000—a significant risk reduction for insiders.

Manne says no law prohibits that, but it is “unusual.” “There is a big difference between a charity saying, ‘We had a bad December, and we could use some money to ensure our continuity,’ and a group that has been losing money for years and may be using money to pay past losses,” he says.

Van Wart denies the bailout placed insiders in a tricky position. “I’ve never considered the possibility that it represented a conflict of interest,” he says.

Van Wart and Cosgrove say the board’s sole interest was to keep OBT afloat and to do so transparently. Any suggestion the board tried to mislead donors or acted unethically is “preposterous,” they say. And in a written statement, the board also reiterated “tremendous respect” for Ulsh.

To help raise money earlier this year, OBT enlisted Mayor Adams. The mayor, who dated OBT artistic director Christopher Stowell in 2004, lobbied city contractors to contribute to OBT, which yielded at least $25,000. June emails show Adams ascribed OBT’s woes to bad winter weather and the recession rather than chronic mismanagement.

Jen Yocom, Adams’ arts adviser, says she was aware of OBT’s “continued financial deficit” and that Adams got involved because OBT agreed to a “huge reorganization.”