Sub-Prime Mortgage Crisis Hits California Cultural Centers

LOS ANGELES—The sub-prime mortgage crisis has hit some of southern California's major cultural centers, including the Los Angeles County Museum of Art, the Orange County Performing Arts Center, the Natural History Museum of Los Angeles County, and the Colburn School, reports the Los Angeles Times. The institutions have sustained combined losses of $3 million since February because of construction bonds that have turned into nightmares.

The construction bonds are auction-rate bonds, originally guaranteed by insurance policies, but since financial rating services like Standard & Poor's have downgraded the insurers because of the mortgage crisis, the cultural institutions have been left with bonds that are no longer secure. Now investors are demanding higher interest.

LACMA alone has $376.2 million worth of construction projects paid for in bonds, the interest rates for which are being reset weekly. Rates have jumped to 11 percent from last year's 3 or 4 percent. The museum's losses are approaching $2 million since February 1.

One possible solution involves Los Angeles County, which has offered to buy the bonds for LACMA and the Natural History Museum as an investment. The deal would cut interest payments to 4.5 percent. Citigroup, which brokers the weekly auctions for both museums, must conclude whether the deal will be approved by the Securities and Exchange Commission before anyone can move forward. For now, the museums have said there is no need to panic or begin program cuts.