Arts institutions feeling impact of ailing economy

But rising interest rates brought on by turmoil in the financial markets boosted payments, and the organization got socked for an additional $650,000 in fees earlier this year for which it had not budgeted.

Like homeowners and stockholders, museums, concert halls, dance companies and other arts organizations are feeling the pinch from the faltering economy.

Museums and symphony halls that financed renovations with seemingly safe municipal bonds saw interest rates spike in recent weeks; other arts institutions are suffering from low returns on investments; and some arts executives are worried that recession fears could take a bite out of donations and ticket sales.

"What turns my stomach every time I turn on the news is the current perception of what's happening in our economy and whether people will get nervous and cut back on their charitable contributions," said Charles Thurow, executive director of the Hyde Park Art Center in Chicago, which used a $5 million fundraising campaign to renovate in 2006 an old Army warehouse into its first permanent home since opening in 1939. "That would affect our annual operating budget."

In New York and Los Angeles, well-established institutions including Carnegie Hall, the Museum of Modern Art and the Getty Center are scrambling to refinance their debt after interest rates climbed on so-called auction-rate bonds. The interest on auction-rate bonds is reset as often as weekly at auctions where investors set the rate through bidding.

The allure for issuers, including museums, hospitals and municipalities, has been lower interest rates than is typical of long-term bonds.

Beginning in February, many of the auctions failed to draw bidders because the volatile economy was giving investors cold feet.

"Nobody was willing to buy the bonds," said Donald Elliott, counsel to New York City's Trust for Cultural Resources, which advises arts groups on bond issues. "You had in some cases a failed auction."

When the auctions fail, the interest rate resets to a pre-established default rate which in some instances can be as high as 12 percent or 15 percent.