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The new leader of the Pittsburgh Symphony will head an orchestra known around the world for its classical music, but one that lately has been playing the financial blues.

A review of the symphony's finances shows that it has borrowed heavily and has eroded its operating reserves. In fiscal 2000, the symphony posted a deficit of $6.9 million. It also faces unfunded pension obligations of $1 million a year.

That means the successor to Gideon Toeplitz, who retires in May as executive vice president and managing director, must walk a precarious tightrope.

"Pittsburgh supports a winner, and the symphony has to be conscious not to reduce the quality of the franchise," said Kenneth McCrory, a principal with McCrory & McDowell, a Downtown accounting firm that specializes in nonprofit groups.

"Look at the Pirates as an example," he said. "They have a lousy team, and the attendance shows it."

McCrory said the challenge facing Toeplitz's replacement "is clearly going to be increasing revenues and cutting expenses while maintaining the quality of the orchestra."

Jerome B. McKinney, an expert on the finances of nonprofit groups at the University of Pittsburgh, has a similar conclusion after having reviewed the symphony's finances.

"Expenditures are not falling as fast as revenues are declining," he said. "That means something has to give."

McKinney and McCrory examined the symphony's finances at the request of the Pittsburgh Tribune-Review.

McCrory said he is especially concerned by the rapid decline of the symphony's net unrestricted assets — its net worth excluding its endowment. That declined from $18.3 million in 2000 to $8.4 million now.

"They've certainly bled heavily, but they're not without substantial net worth," he said. "Clearly, they have to reverse these trends."

Symphony executives say their problems stem from an ailing economy that has shrunk the endowment from $133 million two years ago to $90 million now.

Governments and corporations have less to give. Foundations, which invest their assets in the stock market, have had their portfolios fall, too.

The symphony gets half of its revenues from programming, ads, concessions, its store and rentals; 21 percent from gifts; 23 percent from its endowment; and 6 percent from an operating reserve created from the endowment.

The problem, Toeplitz said, is the reserve is nearly depleted.

"It was depleted a year ahead of time," he said.

The reserve was $1.9 million during the 2001-02 fiscal year.

The Pittsburgh Symphony Orchestra's problems are not unique.

Most symphonies last year posted a surplus. This year, however, most will have a deficit, predicts Jack McAuliffe, chief operating officer of the New York City-based American Symphony Orchestra League.

McAuliffe said there is little that symphonies can do in the short run. Many costs are tied up in long-term leases, union contracts, and agreements with guests conductors and guest artists booked years in advance.

Toeplitz compares his situation to that of sports teams.

Over a lunch, Toeplitz recalled, he and Pittsburgh Steelers owner Dan Rooney agreed about the similarities of the financial structures of professional athletics and world-class symphonies.

The Pittsburgh Symphony is ruled by the finances of symphonies in New York, Boston and Chicago — just as the Steelers and Pirates are ruled by the major markets.

"A first-class player in the Pittsburgh Symphony can likely find a position, assuming there's a vacancy, in any great orchestra," Toeplitz said. "If we don't give him a satisfactory package, why should he stay here?"

That could prove a prominent question when the musicians' contract expires Aug. 31. The symphony's 99 musicians and two librarians picked up a 13 percent increase over five years the last time a contract was negotiated, in 1998, when the economy was booming.

But in 1995, after a threatened walkout nearly jeopardized the 1994-95 season, musicians accepted a three-year wage freeze in response to management's concerns that a salary hike would drain the endowment.

The annual minimum salary for a musician was to be $90,220 in the final year of the current contract which, at the time, brought salaries into line with the base pay of the New York Philharmonic and the Chicago Symphony.

"Free agency" is even tougher in the orchestra world than in professional sports, Toeplitz argued. Pittsburgh musicians may resign any time before Jan. 5, effective the following September.

Major-market orchestras also affect benefits packages.

The Pittsburgh symphony spent only $244,000 on its unfunded pension obligations in 2000. That rose to a combined $8 million the following two years. The federal government requires that pensions be funded at 90 percent of liability.

The problem is twofold: The musicians' pension was underfunded in the early 1990s. When the stock market fell, the symphony had to cover the drop in the values of the staff and musicians' pensions.

The symphony will put a total of $1 million a year in the pensions, predicts Bill Hart, the symphony's vice president of finance.

The Pittsburgh symphony has been working on several fronts to address the problems.

It is trying to attract more individual donors, particularly young ones, so that it can rely less on its endowment. As of Dec. 1, that tactic has raised $243,000.

The symphony also is trying to cut costs without tampering with quality.

A year and a half ago, the symphony cut 10 positions. This year, senior managers took a 10 percent wage cut and middle managers accepted an 8 percent reduction. Engineers and cleaning staff, both of whom are represented by unions, voluntarily returned their 3 percent wage increases this year.

Toeplitz asked visiting artists to consider giving back 5 percent of their fees. About 90 percent of them agreed. That allowed the symphony to save $55,000.

One of them was Julian Rachlin, a violinist from Vienna. He recorded with the symphony when he was just 19.

Toeplitz said Rachlin had told him: " 'This orchestra has done so much for my career that I will give you back 50 percent.' "

The money blues even affect the pieces the orchestra plays and where it plays.

This season, for example, the symphony had planned to play Shoshtakovich's Seventh Symphony here, on the East Coast and in Europe. Toeplitz switched to the composer's Tenth Symphony. That resulted in hiring 12 fewer musicians — mostly horn players — and a savings of $156,000.

In October, the symphony switched a piece by contemporary composer Pierre Boulez to hire fewer percussionists and other musicians. The savings for one week: $20,000.

The orchestra may try to schedule Asian tours whenever the opportunity would arise.

European tours provide higher fees, but the orchestra must pay its own expenses. The fees for Asian tours are half as high as Europe, but Asian countries pay the expenses.

"We come home with half the fees in our pocket," Toeplitz said.

Another opportunity to address costs will come when negotiations begin on a new musicians' contract.

At the thought of missing labor talks, Toeplitz smiled, leaned back in his chair and slapped his hands.

"That's why I'm out of here," he said. "That's why I'm on the beach."

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