The term “public-private partnership” usually has a positive ring–it suggests public projects made possible by support from private enterprise, meaning they require less from taxpayers. But the North Carolina Museum of Art is finding that public-private partnerships can be very tricky things.

Last week, the state auditor released a highly critical report on the NCMA’s finances, saying the public-private mix is far too mixed up. Auditor Leslie Merritt takes issue with the way the NCMA Foundation, a private nonprofit designed to support the museum, has been padding the salaries of museum director Larry Wheeler and more than 50 state employees without requiring them to file secondary employment disclosures. Last year, Wheeler’s state salary was $99,573, to which the foundation added $113,416 and a bonus of $130,000, for a grand total of $358,041. The foundation also pays for his car.

The extra cash is no secret to the state’s Department of Cultural Resources, the agency that oversees the museum. The DCR verbally approved this compensation, the audit says, but did not get approval from the state personnel or state budget offices or from the state legislature. From the DCR’s point of view, the foundation money is a way to solve the problem of recruiting and retaining talented people in a competitive marketplace. Wheeler’s pay puts him among the top quarter of all museum directors in the country, according to the Association of Art Museum Directors’ salary survey, which estimates the median salary to be $160,000.

“It’s more than just supplemental salaries. There are other issues,” says Dennis Patterson, spokesman for the auditor’s office. Private foundations do not have to make all of their finances public, and frequently do not follow the procedures required of a state agency. And with more than half of the NCMA’s financial support coming from the foundation, there’s concern that the museum is becoming less accountable to the public to which it is chartered. “We’re not knocking foundations, not at all. They do great work. But you have to play by the rules,” Patterson says.

The NCMA is hardly unique in relying on foundation money to boost compensation for its employees. As The News & Observer reported Monday, the N.C. Symphony and the N.C. Museum of History also get tens of thousands of dollars from foundations each year. So do employees at coastal aquariums and coaches at state universities. In fact, some employees of these organizations are paid entirely by foundations.

Joyce Fitzpatrick, president of the board of the NCMA Foundation, disagrees with the audit’s findings. “We felt that, quite frankly, the auditor was naive and didn’t really understand what it takes in this day and time for an institution like the art museum to run.” She sees the musem as a model for public-private partnerships in North Carolina. “I’ve always seen this as a tango,” she says. “We’re all for transparency, and we understand that we’re dancing with this big public institution that belongs to the people of North Carolina.” The foundation would be happy to make its finances more open, she says, but “we didn’t find any helpful suggestions in the auditor’s report.”

Patterson says the NCMA’s public-private arrangement is particularly convoluted. “It was unusually difficult to try to separate out where the state entity ended and the private foundation began. They’re very, very closely intermingled.”

And not all of the museum’s employees benefit. “With the art museum, you had a situation where some employees had supplements to their pay and some didn’t. We asked how those decisions were made, and it was pretty much discretionary. The whole state pay wage system and evaluations were set up specifically to keep that from happening, because in too many cases you end up rewarding your friends or employees that you like, not based on any job performance. We understand that the state system can be a cumbersome system to deal with,” Patterson says, “but when you have rules set up they’ve generally been set up for some good reason.”

Then there are the thousands of other rank-and-file state employees who are entirely left out of the public-private arrangement. (The audit itself was prompted by someone contacting the state auditor and dropping a dime on the practice.)

Asked what donors might think of their museum contributions going toward six-figure sarlaries, Fitzpatrick says, “The lion’s share of the money we raise goes toward education, distance learning, the art park and the exhibitions we bring. Our budget is over 11 million dollars a year, so only a fraction of what is donated goes toward salary.”

Dana Cope, executive director of the State Employees Association of North Carolina, says foundation support is “only a temporary stopgap measure for those at the very highest levels of government.” Cope has been a vocal advocate for pay increases for state employees, whom he says are way behind in terms of salary, health care and retirement benefits when compared not only to the private sector but also to other states.

Cope says he doesn’t begrudge NCMA employees or anyone else whose state salary is supplemented with foundation money. “I don’t see any fault with those folks, quite the opposite; [the foundations] are trying to step in and provide a public service,” he says. “But there is no one else looking out for the rest of state employees, who are trying to pay for food and medicine.”

The problem of recruiting and retaining talented people affects all areas of state government, from corrections officers to food inspectors, Cope says.

Last year, the general assembly approved a $1,000 pay increase for state employees across the board. In 2006, Cope says SEANC will push for a 5 percent pay increase. “It costs between $30,000 and $34,000 a year to incarcerate an inmate in the state department of corrections, and the average state employee’s salary is $33,000. There’s something to me that’s wrong about that public policy.”

“I think the real issue here,” Fitzpatrick says, “is how in the 21st century can a state-run museum of art be really great without relying on a combination of funds from the public and private sectors? I don’t think it can.”

Patterson says the state auditor’s office would like the roles of foundations to be made clearer. “These nonprofits are established for one purpose and one purpose only: to raise funds for a state institution. If the General Assembly defines a little more what their role is and how they report, that certainly would be helpful.”