Houston Nonprofits in Enrons Undertow
March 1, 2002 Richard Williamson
When Tropical Storm Allison flooded Houston’s theater district last June, the Society for the Performing Arts lost its headquarters along with valuable equipment and records needed to stay afloat.
To the rescue came one of the pillars of corporate philanthropy — Enron Corp. — which provided free furnished offices, along with telephones, computers and a well- stocked kitchen, on the 37th floor of Three Allen Center near its downtown headquarters.
Six months later, Enron itself collapsed in the largest corporate bankruptcy in history, leaving 4,500 employees jobless and sending shock waves through the cultural and charitable institutions the company had supported through $10 million in annual contributions.
For the Houston Ballet, reality sank in three days after Enron’s bankruptcy when a $15,000 company check to cover a charitable performance of The Nutcracker bounced.
Coming on the heels of recession, flooding and terrorist attacks, Enron’s collapse created a “quadruple-banger” that brought major belt tightening to the arts organizations, said David Gockley, general director of the Houston Grand Opera.
“All of the events taken together have created a pretty devastating environment for contributions and ticket sales for all but the most hugely well- known events,” Gockley said. “Our income is down 15 percent — about equally in ticket sales and contributions — which for us is about $3 million. We have nickeled and dimed ourselves to death and we’re still looking at an out of balance situation. It will take two years to right ourselves.”
Like the Society for the Performing Arts, the Grand Opera suffered flood damage to its Wortham Theatre and to props and costumes it rented out to other organizations. Instead of receiving further Enron help in recovery from the floods, the arts groups reversed roles, offering free tickets to the company’s laid-off employees.
For the Grand Opera, free subscription renewals for upward of 100 families could cost about $75,000, not a major budget buster for an organization that operates on $20 million annually. But the effects of losing Enron are likely to linger for years.
With months to go before it could reclaim its offices in Jones concert hall, the Society for Performing Arts faced the prospect of another move amid Enron’s bankruptcy. In January, the society’s telephone system, kitchen appliances and other borrowed assets were seized to pay off Enron creditors.
Through to a generous lease arrangement from building manager TrizecHahn Corp., however, the society was able to keep its furnished offices. Within a day of losing its telephones, the society installed a new system that restored communications during its busiest time of the year.
While grateful that TrizecHahn didn’t leave his organization high and dry, Society Executive Director Toby Mattox remained concerned about the health of Houston’s largest corporations and the economy in general.”
“It’s been one of the most difficult years we’ve ever had,” Mattox said. “When you realize that Compaq has been having difficulties and Continental Airlines has been having difficulties, you begin to be concerned about the level of short-term giving.”
Among those who will suffer the most direct losses with Enron’s collapse is the celebrated Alley Theatre, recipient of about $500,000 during the past six years.
“They’ve served as production sponsor and sponsor of education and community outreach programs,” said Alley spokeswoman Jennifer Garza.
Operating on an $11 million annual budget, Alley counted on Enron for about $150,000 in support for the Barbara Jordan Project, a community speech, essay and acting tournament.
To reduce expenses, Alley Theatre instituted a hiring freeze, sought ways to eliminate non-essential expenses and tailored its entertainment fare for more sure-fire audience draws.
The theater regained one of its major venues in January when the Neuhaus Arena Stage reopened after $6 million in flood damage was repaired.
Like the other organizations, Houston Grand Opera revamped its program toward more popular attractions while eliminating outreach programs such as its free summer performances in the parks. For Gockley, that was the hardest pill to swallow.
“Those performances attracted between 30,000 and 50,000 people a year, which is the future of our program,” he said.
The Society for Performing Arts made similar tradeoffs. “Instead of bringing in a major orchestra from somewhere in the world, we’re bringing a chamber orchestra,” Mattox said. “Instead of bringing the Bolshoi Ballet, we’re bringing a smaller ballet from France. We’ll still have an artistically fine season, but there will be less risk.”
The Houston Ballet expects to land on its feet with a prospective donor to replace Enron’s $38,000 annual contribution, said Randy Penn, director of institutional giving. No further belt-tightening is expected, he said.
Elsewhere, dozens of other civic, cultural and charitable organizations experienced a similar sinking feeling with the loss of a leading patron.
Among the beneficiaries of Enron’s 16 years of giving were the M.D. Anderson Cancer Center, the Museum of Fine Arts Houston, Rice University and the University of Houston, where Enron Chairman Kenneth Lay earned his Ph.D in economics.
Enron has told Rice University that it will not fulfill its pledge of $5 million to endow two professorships at Rice’s Jones Graduate School of Management. With an endowment of $3 billion, the university expects to apply the funds Enron had already donated for other purposes, such as the building fund, said Rice vice president of communications Terry Shepard.
While Enron and Lay drew withering attacks in Congress and the media for the financial and accounting scandal that left employees without jobs or retirement funds, many of Houston’s nonprofits praised the company, its officers and employees for their generosity over the years.
“We all feel sorry for Enron and the employees,” Mattox said. “I haven’t heard anyone make decisions about who’s right and who’s wrong. We just lament the passing of Enron. We all had Enron members on our boards and they were part of the community.”
Rachael Tobor, director of community affairs at Enron, said officials from the cultural and civic groups began calling immediately after the Chapter 11 bankruptcy filing. “They were asking how they could help us, because we were so generous with them,” Tobor said.
To provide direct financial assistance, Houston’s nonprofits created funds that could help cover mortgages, pay utility bills or help with other necessities. Led by the Greater Houston Community Foundation and the United Way, the Enron Employee Transition Fund raised nearly $400,000 by February 1. The leading contributors to the Transition Fund were politicians who had received campaign contributions from Enron, including Texas Sen. Kay Bailey Hutchison who kicked in $100,000.
Services covered by the fund will be managed by the Houston Urban League. Another fund, the Enron Ex-Employee Relief Fund founded by former Enron employee Rebekah Rushing, has taken in about $160,000, with some of the biggest donations coming from Sen. Charles Schumer, (D-N.Y.), and the Democratic Senatorial Campaign Committee.
While seeking money for laid-off Enron employees, the United Way is also leading a campaign to raise $4 million for victims of Allison under the banner One Houston United. Many of the 118,000 people who sought financial assistance after the floods earned less than $14,000 per year, officials said.
“Many are still out of their homes or are living in partially repaired conditions,” said Jacqueline S. Martin, president of United Way of the Texas Gulf Coast. “These households have little or no means of replacing even basic items like winter clothing and blankets.”
While coping with recovery from a natural disaster, a recession and a major business failure might seem daunting in one year, “the good news is that this is a very philanthropic city,” said Stephen Maislin, executive director of the Greater Houston Community Foundation.
Until its bankruptcy filing, Enron encouraged employees to volunteer and matched charitable contributions up to $15,000 for a total of about $1 million annually.
Enron’s team of cyclists were perennial stars in the National Multiple Sclerosis Society’s Houston-to-Austin race, garnering $500,000 in pledges in 2000, including $65,000 through former Chief Operating Officer Jeff Skilling.
As the second largest contributor to United Way of the Texas Gulf Coast, Enron accounted for $5.5 million of the $75 million pledged in last year’s campaign. The company took first place in large contributions with 48 employees pledging $10,000 or more. This year, Enron is not providing its corporate match of $3 million to employee pledges.
“It’s too early to tell what impact Enron will have on nonprofits in Houston,” Martin said. “We’re cautiously optimistic we will reach our goal.”
How much private giving will be lost is hard to calculate. But Linda Lay, wife of former Enron Chief Executive Kenneth Lay, claimed in a January 29 television interview the family was teetering on bankruptcy.
“We’re fighting for liquidity,” she told NBC’s Today Show. “We don’t want to go bankrupt. … Other than the home we live in, everything we own is for sale.”
According to NBC, the Linda and Ken Lay Family foundation gave away $26 million over six years.
In a filing with the IRS for the year 2000, the Lay Family foundation listed assets of more than $52 million and donations of nearly $2.6 million, including a $1 million donation to Rice University, one of three installments in a $3 million commitment to develop a research and teaching center focused on the study of markets in transition.
“We have two of their three installments in hand and they have told us they have every intention of paying the third one,” said Rice’s Shepards.
The Lay family is close to the family of former President Bush and the current President Bush, who faces close scrutiny concerning hundreds of thousands of dollars in campaign contributions from Enron and its executives. Lay’s foundation has given several gifts to the literacy foundation of former First Lady Barbara Bush.
In year 2000, Lay gave his foundation 183,011 shares of Enron valued at $14.5 million. Despite selling 47,200 shares of Enron in 2000 for a capital gain of $3.3 million, the foundation appeared heavily invested in Enron at the end of that year.
Richard Williamson is a Dallas-based reporter for the Denver News Bureau.