Auditing the Kennedy Center

Sitting in the nation’s capital, the John F. Kennedy Center for the Performing Arts has been the target of many critics of various government stimulus bills in 2020.

Earlier this year, the Kennedy Center received $25 million in stimulus, and subsequently released a statement detailing how the majority of those funds would be used to cover payroll. While this might seem to make sense at face value, considering most businesses who were closed due to the coronavirus pandemic struggled to pay their employees, the Kennedy Center is owned and operated by the Federal Government — and federally funded with a fixed annual budget for operational expenses including payroll.

(In other words, that fixed payroll was already funded for the fiscal year. What was not funded by the government was programming costs, which are covered by ticket sales and donations — but the Center has been closed, so there is no programming).

Adding further curiosity to the designated stimulus funding is a second round of stimulus recently passed by the congressional omnibus bill, including another $40 million for the Kennedy Center, with $26 million dedicated explicitly for operational expenses that include payroll.

That’s a total of $65 million for a facility with a $25 million annual operating budget.

Kennedy Center leadership stated earlier this year that if they did not receive government stimulus, they would run out of money. This couldn’t be further from the truth when you consider the annual statements of the Center. In addition to the Kennedy Center’s annual budget for 2020, a review of their annual tax filings discloses that they average more than $320 million annually in additional revenue from donations, grants, program service revenue, interest income, and other undisclosed sources of income.

This is further corroborated by the website Charity Navigator, who discloses the Kennedy Center’s 2018 Income Statement totaling just over $319 million for FYE 9/2018. The statement goes on to list annual expenses at just under $280 million, for an excess profit of more than $39 million for the year — with an additional $436 million of net assets, or reserves on hand.

In fact, page 12 of the Kennedy Center’s 2018 tax filing shows net assets for the year at just over a half-billion dollars. Yes, a cool $500 million, for a Center that says it is going broke.

The Kennedy Center’s President, Deborah Rutter, receives an income (with bonus) of $1.2 million annually, which is roughly 20% of the entire staff payroll, with most senior leadership making around $300k annually (see tax filing for details), and the average employee making about $80k annually.

There seems to be an enormous and unusual disparity in wages between the a Center’s President and even its most senior leaders, with an even broader gap between the frontline workers.

Another variable that calls into question the financial integrity of the Center: 14 members of the Kennedy Center’s Board of Trustees are members of the very Congress tasked with appropriating the Center’s funds from the federal tax pool. Those members of Congress currently include:

Rep. Nancy Pelosi
Rep. Kevin McCarthy
Rep. Peter A. DeFazio
Rep. Sam Graves
Rep. Joseph P. Kennedy
Rep. Joyce Beatty
Rep. Jason Smith
Sen. Mitch McConnell
Sen. Chuck Schumer
Sen. John Barrasso
Sen. Thomas R. Carper
Sen. Mark Warner
Sen. Roy Blunt
Sen. John Cornyn

The tax filing does not reveal any reportable income for those members of Congress, and their inclusion as Board Members appears to be something that the Congress themselves have written into law, in yet another tangled web of elite privilege. 20 U.S. Code§ 76h outlines the establishment of the Board of Trustees.

However, the tax filing also does not reveal what additional benefits those members may receive without having to disclose them. For instance, the Center spent more than $320k in 2018 for travel to Europe, Russia, Mexico, South America, and the Caribbean for “fundraising and program services.” Almost $800k was spent on independent consultants, with little detail given, or any way to know whether or not they were connected to the Board of Trustees.

Additional discretionary spending includes 440 grants, totaling nearly $1.3 million, that were given to domestic organizations or individuals within the United States. There were also 16 grants totaling $27k that were given to individuals or organizations outside of the United States. There is no detail as to exactly whom those recipients were, or whether or not there was any connection to the Board of Trustees.

At a minimum, the optics are horrible to have members of Congress sitting on the Board of an Institution whose tax revenue they legislate. At a maximum, it is a serious conflict of interest. We may never know how the discretionary funds are spent, either, thanks to a clause included in the original 1958 Act establishing the Center. Section 5(c) states: “The actions of the Board, including any payment made or directed to be made by it from any trust funds, shall not be subject to review by any officer or agency other than a court of law.” Imagine being able to legislate yourself into a position where you control the funds, and then not have to be accountable to anyone for how those funds are spent — and it’s all legally written into the law that you wrote.

Finally, there is something very amiss about the operating expenses of the Kennedy Center, and this is before any of the programming expenses. The Center’s footprint is roughly 77,000 square feet. A $26 million budget for operating & maintenance puts the cost to operate the facility at almost $338/psf. According to the most recent data from the Building Owners and Managers Association (BOMA) in Washington DC, the average operating expenses for a commercial facility are just under $18/psf.

The government is providing the Kennedy Center with funds that are nearly 20x the market rate for operating expenses, and that is before all of the Center’s private donations, memberships, and endowments.

Two things are certain. The Kennedy Center is at no risk of running out of money anytime soon, and there seems to be an untold story of where all of the funds are ultimately spent.