Houston We Have a Comeback

April 1, 2006       Marla Nobles      

As former Enron executives Kenneth Lay and Jeff Skilling sit in a courtroom in downtown Houston nearly five years after the house of cards that was Enron Corp. came crashing down, Houston’s energy industry is finally making a comeback.

Also making a comeback are Houston’s nonprofits — some slower than others.

Four major events impacted Houston during 2001 and 2002: a national economic recession; the September 11 terror attacks; devastation from Tropical Storm Allison; and, the financial implosion of Houston-based Enron. Collectively, these events dealt a massive blow to the city of Houston, whose economy had been largely dominated by the energy industry since the 1980s. This trickled down to local nonprofits large and small, most of which depended on contributions from the energy corporations and individual energy traders.

Taking a closer look at the economic ripple effect attributed to the largest corporate bankruptcy scandal ever, nearly five years later many Houston-area nonprofits are still not in the clear, particularly the arts organizations.

Aside from the apparent greed, Enron, with Kenneth Lay at the helm, was well-known in Houston for its generosity. The company contributed annually 1 percent of its pre-tax earnings, or approximately $12 million, to charities, according to the Houston Chronicle. The Linda and Ken Lay Family Foundation during 2000 reportedly made approximately $3.6 million in contri- butions, and another $6.1 million during 2001. The money went to Houston’s churches, museums, universities, hospitals and various charities. With its assets radically diminished due to holdings in Enron stock, the foundation remains fiscally strapped, and continues to work toward fulfilling outstanding pledges circa 2002.

Spokespeople for the Lay Foundation declined to be interviewed for this story. “Because so much money has been diverted away from our local communities since 2001, ( Houston) has had its own metaphoric tsunami,” said Jacqueline Beretta, chairman, The Beretta Foundation, in San Antonio, and editor/publisher, Texasnonprofts.org.

“In a crisis, any extra dollars will go to save a family or a child, but sometimes folks forget that another important element of a society is to nurture our unique expression through arts and culture.” But, added Beretta, it’s been nearly five years and “the economic climate in Houston is good…and this translates into more money to give.”

‘A tough couple of years’

According to Joy Partain, a spokeswoman for Houston Grand Opera (HGO), the recovery has taken time. “It has been a tough couple of years,” said Partain. “Even if you weren’t a recipient of large Enron donations, which we weren’t, all the rest of the oil companies took a hit at that time from the public distrust.”

In 2002, then-general director of HGO, David Gockley, who in 2005 vacated the seat, told The NonProfit Times that the organization’s income was down nearly 15 percent, the equivalent of about $3 million. “We have nickled and dimed ourselves to death and we’re still looking at an out-of-balance situation. It will take two years to right ourselves,” he said, at the time

But, according to Partain, although much progress has been made in the past four years, the theater is not yet fully recovered.

The most immediate impact was wrought by Tropical Storm Allison in June, 2001. Along with severe flood damage to its Wortham Theatre, HGO suffered damage to props and costumes, as well as to sewing machines and other critical inventory. The symphony sustained the loss of its music library, located underground. In the ensuing months, the theatre would begin to streamline by eliminating several outreach programs, including the popular free summer performances at Houston’s Miller Outdoor Theatre, and by putting on more mainstream productions that would “expand the definition of opera.”

This year, due to an annual budget that has hovered around $20 million for the last few years, HGO has put on hold another popular program: its world-renowned commercial operatic recordings. “We decided that (the recordings were) just an expense we would rather not incur if donations are still low at this point,” said Partain. The theatre continues to produce the better-known operas, namely Carmen, which will run throughout the spring and hopefully draw larger crowds. And although in 2005 the theatre revived the free summer productions, it has yet to reverse the decision it made in 2002 to only run the less costly scenes program for its studio artists in the theatre’s training program.

The city of Houston rode pretty high on the boom of the energy industry throughout the 1990s. After Enron filed for bankruptcy in December, 2001, energy trading was all but dead in the city, according to the Houston Business Journal. “There are some very affluent Houstonians who, you know, a handful of them can make or break your budget,” said Partain. “And when they are feeling the pinch from the stock market, they are less willing to help what is considered fringe and expendable. And so if the economy is hurting, (the arts) are really hurting.”

“A lot of arts organizations drew disproportionate dollars. If you looked at their donors, a number of their donors were energy traders and energy executives. So when the ripple effect hit, it hit them harder,” said Stephen Maislin, president and CEO of the Greater Houston Community Foundation. In 2002, the foundation partnered with the Houston Area Urban League and Career and Recovery Resources, Inc., along with the United Way of the Texas Gulf Coast, in Houston, and created the Enron Employee Transition Fund, raising approximately $1.5 million over six months.

“We had a donor who covered our expenses so we were able to give out 100 cents on the dollar over to those agencies,” said Maislin. The money was distributed to the approximately 4,500 workers laid off, to cover medications, mortgages, and to provide general assistance. The Enron Ex-Employee Relief Fund Account, set up by former Enron employee Rebekah Rushing, had by April, 2002, distributed nearly $300,000 to 222 former employees. In December, 2005, a Texas bankruptcy judge ordered about 40 former Enron traders to return $20 million in bonuses the company paid them just prior to declaring bankruptcy, to go to laid off employees, according to the Houston Chronicle.

“By the end of the (Enron Employee Transition) Fund, we were starting to see a lot of folks who were not of retirement age starting to get re-employed,” added Maislin. “I’m not saying it wasn’t painful — people lost a lot of money and jobs — but over a period of months and years, you started to see people putting their lives back together.”

 

You can’t count on me

The Alley Theatre, located in Houston’s robust theater district, is another story. The theatre was at an all-time high in the fiscal year just prior to the Enron collapse, according to Kristen Loden, executive director of development. “And it steadily decreased from that time on.” Among other things, the theatre had to recover from the extensive flood damage to its Neuhaus Arena Stage.

The theatre had counted on Enron for significant contributions throughout the pair’s six-year partnership, including Enron’s donation of a combined $500,000 to fund the theatre’s Barbara Jordan Project, a community speech, essay and acting program. And while Loden said subsequent donors have stepped in to support the program, none at the level of Enron.

“We’ve had to justify the contributions. We’ve had to speak to their business strategies more than maybe we had to in the past,” said Loden. “Prior to Enron, there was more a sense that companies would support arts organizations because it was a right and good thing to do, and now there has to be a real business rationale.” But, said Loden, there have been a few “bright stars” that have stepped in, such as Sterling Bank and Enbridge Energy Partners, which committed to support the Alley over a multi-year period.

“We have adapted and responded very well to the events of 2001 and 2002”, added Loden. “But, we are definitely a leaner operation.” In 2002, the Alley reported an operating budget of just more than $11 million; in 2003 it dwindled to little more than $10 million, and by 2004 it was hovering around $9.5 million. The Alley finally started seeing an improvement in 2005, with a budget of $10.6 million. “So we’ve been able to expand in some areas. But in the last four years we’ve definitely seen our contributed revenue struggle,” added Loden.

Yet another ripple effect of the Enron crash was the subsequent demise of the energy giant’s auditor, accounting firm Arthur Andersen LLP, which has all but dissolved (the single remaining office, in Chicago, will soon shut its doors). Andersen was also a supporter of the Alley Theatre.

“There were certainly some reverberating effects (of Enron) on other companies,” said Loden, citing the rash of mergers and acquisitions that took place in the years prior to and following the Enron debacle, including Exxon-Mobil (1999), Chevron-Texaco (late 2001), Conoco-Phillips (2002) and Enron-Dynegy (late 2001). “Two has become one,” explained Patrick Mulvey, 20-year vice president of development for M.D. Anderson Cancer Center at the University of Texas, in Houston, of the contributions the oil giants once gave to area nonprofits.

In stark contrast to that of the Alley Theatre, the budget for M.D. Anderson Cancer Center is massive, roughly $2.2 billion. And while Mulvey maintained that any contribution to the center is significant, the combined $2 million Enron and the Lays contributed over the years is one among many. In 2005 alone the center received, for example, three multi-million-dollar gifts from affluent Houston families, totaling approximately $60 million, according to Mulvey. The development team at Anderson raises roughly $100 million to $110 million each year in cash and pledges.

“But anytime a donor of that magnitude (Enron) is lost in this community, it’s a step backwards that we need to address and overcome,” said Mulvey. Citing the mergers, the tropical storm in 2001, as well as the changing economic atmosphere in Houston, Mulvey said the area nonprofits have had to weather a lot in the past four years, but because of its size, he wouldn’t describe the situation at Anderson as “recovering.”

The Boys & Girls Club of Greater Houston (BGCH) was impacted in more ways than just financially by the collapse of Enron. “For us, we called it a re-learning moment,” said Kristi Ireland, director of special projects, of the recovery process after losing Enron’s support. “Because we had to go back to the drawing board on many things.”

In 2000, Enron and the BGCH entered into a 10-year, $240,000-per-year partnership for the operation of a new club, to be named the Enron Boys & Girls Club, in Houston. Today, in its stead is the Holthouse Boys & Girls Club, a testament to the importance of board members. “Right when we were scheduled to open (the Enron club) is when everything happened,” said Ireland. BGCH board member Michael Holthouse stepped in, pledging to fill the gap left by Enron. The Enron name was quickly removed from the building.

The BGCH was not as quick to recover from the loss of a significant volunteer base it had in Enron employees, who often acted as honorary counselors at a BGCH summer camp. But, for the most part, the impact wasn’t as jarring to the BGCH as it was to many arts organizations in Houston. The organization saw steady increases in its annual budget, from $2.1 million in Fiscal Year ’03 to $2.7 million in FY’05. “I would say we definitely had to recover,” said Ireland. “But then again, our recovery time was a lot faster than others’.”

Today, the United Way of the Texas Gulf Coast (UWTGC) is reporting financial growth, and is “as strong as ever,” according to Ed Davis, a spokesperson for the organization. Although it did see a drop-off in contributions in 2002 and 2003, said Davis, the organization saw contributions pick up in 2004.

“Enron and its employees were very generous contributors (of both time and money) to many nonprofit organizations in Houston,” said Davis. In 2004, the UWTGC amassed $65 million in contributions, and is “cautiously optimistic” that it will reach its 2005 goal of $67 million, said Davis. NPT

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