In January a group of New York arts journalists gathered at an upscale Italian eatery in SoHo to learn about the San Francisco Museum of Modern Art’s upcoming exhibitions and planned $24 million rooftop sculpture garden. In his address to the group, the SFMOMA board chair and investment guru Charles Schwab insisted that prudent stewardship would protect the museum from any recession fallout.

But strong leadership alone may not be enough to protect institutions from a daunting array of problems, from budget gaps and staff cuts to shrinking corporate and individual patronage and flagging capital campaigns. Worse, Wall Street’s troubles have eaten away at museum endowments. The mighty J. Paul Getty Museum, in Los Angeles, had lost 25 percent of its almost $6 billion endowment by the end of the last fiscal year. In a terse all-staff memo issued in mid-December, the Getty Trust chief executive James Wood warned his team that "it is essential that we significantly reduce spending, which will have an impact on staffing, programming and operations." A hiring freeze is in effect at the Getty as well as at other major institutions, including the Museum of Modern Art in New York, where department budgets were trimmed by 10 percent, and the Indianapolis Museum of Art, whose endowment fell 24 percent, to around $300 million.

"We’ve cut out overhead and administrative costs, and we seem to be okay," says the IMA’s director, Maxwell Anderson. "But if the endowment doesn’t recover some significant value in the next year, we won’t be." The IMA has already pruned its budget by 9 percent, reduced special exhibitions from three to two a year and pushed back the opening of its $25 million Virginia B. Fairbanks Art & Nature Park from September of this year to spring or summer of 2010. Layoffs are possible if the economic climate remains bleak.

Some institutions no longer have reserve funds to dip into. By the end of 2008, according to a New York Times report, the Museum of Contemporary Art in Los Angeles had spent most of its $50 million restricted endowment. That news was followed by the resignation of Jeremy Strick, its director of nine years, and the appointment of a temporary chief executive, Charles Young, to steer the museum back to solid financial footing. The megapatron Eli Broad has promised to invest $30 million to save MOCA.

Straitened circumstances are nothing new to Graham Beal, the director of the celebrated though chronically cash-strapped Detroit Institute of Arts. "We’ve been living with recessionlike conditions since 2001, 2002. So we’re known for being in trouble," says Beal. He claims he’s raised an average of $100,000 a day since he took the helm at DIA, in 1999, which adds up to a whopping $350 million, but he notes that, "we can’t go on raising money at the rate that we have been."

Beal points out that the problems are only emerging. "Everyone is just beginning to feel it." The first thing a director worries about, he says, "are the people who are not able to fulfill the pledges that you have actually included in your planning." This extends to corporate support — the city’s struggling auto industry can no longer provide dollars — and Beal also mentions one "very generous donor" who apologetically told him that the amount he had originally hoped to give would have to be reduced.

It is a quandary in which more and more institutions find themselves. "The e-mails from brother and sister directors changed dramatically a couple of months ago," says Beal. "I have a lot more company than I did last summer in terms of cuts."

Beal’s general sense of sympathy for his suffering brethren does not extend to the National Academy. In late 2008, the 184-year-old New York institution raised cash for operating expenses by selling two of its Hudson River School paintings to a private foundation. The works, Sanford Robinson Gifford’s Mount Mansfield, Vermont, 1859, and Frederic Edwin Church’s Scene on the Magdalene, 1854, were parted with in exchange for $13.5 million. This move violated a long-standing Association of Art Museum Directors (AAMD) policy requiring that funds from deaccessioning be used only "to acquire works of art and enhance a museum’s collection." The academy withdrew from the AAMD shortly after the transaction, but did not escape censure from the organization. "I would never have been able to allow the institution to close in order to take the position of not selling the paintings," says Carmine Branagan, the museum’s director as of last December. "The academy really had no option but to sell." Beal compares the academy’s latest deal to its unloading of several works a dozen years ago, before it was an association member. "The [directors then] said they had to sell them in order to survive," says Beal. "What it actually did was enable them to avoid making some really tough decisions, and now they’re arguing that they made a tough decision by [deaccessioning] again. In fact, they’re just perpetuating a failing institution."

An even bigger deaccessioning bombshell landed in late January: The trustees of Brandeis University, in Waltham, Massachusetts, decided to close the Rose Art Museum and sell the entire collection to pay the school’s operating costs. The Rose’s nearly 6,000-piece collection, which includes works by Willem de Kooning, Jasper Johns and Andy Warhol, is worth a reported $350 million to $400 million. The Rose sold off works to raise money for the Brandeis endowment before — in 1991, it put 11 Impressionist paintings on the block at Christie’s New York, for $3.65 million.

At press time, the Massachusetts attorney general’s office had just announced that it would begin reviewing the decision to determine whether Brandeis has violated the terms of any donations; many of the museum’s acquisitions were gifts.

Given the grim environment, could other struggling institutions follow? Although some may wish they could raid their holdings to generate operating funds, it’s unlikely that the 180-member AAMD will encounter any serious revolt against its decades-old restriction. "I simply cannot imagine we would ever back away from this requirement," says Dan Monroe, the chair of the association’s art issues committee and the director of the Peabody Essex Museum, in Salem, Massachusetts. "It is so fundamental to the integrity of art museums. As soon as one starts treating the collection as a fungible asset, then the whole underpinning of support evaporates. Donors are not going to give works of art to museums with the notion in mind that next year they may turn around and sell them to pay their directors’ salaries."

Neal Benezra, the director of SFMOMA, agrees. He describes deaccessioning as "kind of the third rail of American museums" and states that "there have got to be other things that can be done first."

One such "thing" is to shift priorities. Huge capital projects, even those not involving new buildings, could be delayed or even canceled. "We don’t know where the bottom [of the recession] is," says Michael Conforti, the president of the AAMD and the director of the Sterling and Francine Clark Art Institute in Williamstown, Massachusetts. "So we do not want to make any commitments, and that is true both in terms of building expansion and true of staff expansion." Conforti notes that museums contemplating new construction may hold off for a year: "Everybody who’s not already in the ground is looking at their building plans and schedules in a more realistic way. You can’t obligate your institution at a time of this level of uncertainty."

It’s unclear how the downturn will affect building projects that are in the preconstruction phase, such as the $125 million addition to the St. Louis Art Museum, by the hotshot London architect David Chipperfield, and the Renzo Piano-designed Whitney Museum of Modern Art, near the High Line in downtown Manhattan. Asked to comment on the status of the museum’s $680 million capital campaign, of which $435 million is allotted for construction of the Piano development, a Whitney spokesperson will say only, "We are still in the ‘quiet’ phase of fund-raising, so no one can answer these questions yet." Similarly discreet are the principals involved in the 75-story Jean Nouvel residence and hotel tower to be built next to the MoMA, in New York, that would give the museum an additional 50,000 square feet of gallery space. In 2007, MoMA sold the vacant parcel of land to Hines, the Texas-based real estate developer, for $125 million; after construction costs, MoMA estimates it will have $65 million left for its endowment. A Hines spokesperson, while asserting that the firm is pursuing the necessary approvals, refuses to say whether sufficient financing is in place.

Maxwell Anderson, of IMA, gives this advice to his fellow directors: "Take the medicine now. Be very careful about resources in the future, be very aggressive in pursuing contributive income, and don’t sell your soul trying to compromise your mission to make a quick buck. That will be the hair shirt you’ll wear when recovery begins."

"The Art of Cutting Back" originally appeared in the March 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's March 2009 Table of Contents.