CALAIS – Struggling to gain a foothold with potential donors, the Downeast Heritage Museum took steps this week to restructure its overwhelming debt and filed for Chapter 11 bankruptcy prote%ction.

The nonprofit museum filed petitions at U.S. Bankruptcy Court in Bangor to relieve approximately $3.2 million in debt.

Most of that is owed to U.S. Department of Agriculture, Rural Development, the federal agency that provided financing to the museum for its opening in 2004.

The museum will continue to operate as usual while the bankruptcy protection proceedings move forward.

“It wasn’t a secret that we were struggling with difficult debt,” Jim Thompson, the museum’s executive director, said Wednesday.

“With the successful completion of this act, we will be able to present a balance sheet acceptable to foundations and corporate sponsors to support our institution.

“Our attorney has expressed optimism that this is the right course to take.”

The museum has the support of Gov. John Baldacci, who signed over $300,000 from the state’s emergency contingency fund to keep the doors open last June.

The museum’s board of directors anticipates that the Chapter 11 procedure could have a positive outcome as soon as January.

The alternative to restructuring, Thompson noted, was a likely foreclosure and liquidation of the museum.

“The board takes its obligations very seriously, but directors have a responsibility to assure the museum’s future as an important economic and cultural asset for the region,” museum officials said in a statement.

A critical event leading to the current situation was the withdrawal in late 2003 of a $1 million federal grant that was to provide money to complete museum exhibits, and to operate the facility for several years while private revenue sources were secured.

The museum opened on May 22, 2004, but with only three of the four permanent exhibits in place, and without operating funds to support – among other key needs – a marketing program.

USDA Rural Development and four area banks approved a loan of $1.3 million to pay final construction costs, build a fourth exhibit, and provide short-term operating funds for one year.

Yet the museum debt grew above $3.2 million. The cost of the mortgage payment is now about $18,000 per month.

Ten months ago, faced with fast-declining operating funds, the museum board suspended mortgage payments during November. Last January, the board also furloughed the museum staff and placed the executive director on half salary.

Thompson’s full salary was restored in April, but will be reduced again by 50 percent between Nov. 1 and March 31.

Additional operating revenues continually have been sought from commercial and private sponsors, foundations and government, but there have been no takers for naming rights to exhibits, programs and scholarships.

The board seeks to restructure the debt to manageable proportions, based on the museum’s assets. That includes about $200,000 in cash-on-hand, and the value of the building and the exhibits.

USDA Rural Development is owed $2.6 million, and four area banks – Calais Federal Savings Bank, Machias Savings Bank, Bangor Savings Bank and The First – are each owed $150,000. The banks’ amounts are 90 percent guaranteed by USDA Rural Development, so the actual exposure of each bank is $15,000.

“This isn’t coming as a surprise to any of the lenders, and they understand the nature of the problem,” said Brunswick attorney Stephen Morrell, who is working with the museum.

“The sense the museum has gotten from them is that they want to support the museum to the extent that they can. Right now, the plan is to arrive at a consensus for how the museum can be restructured and continue to operate.”

The museum’s original business plan called for operations to be financed mostly by admission fees. Subsequently, it was realized that attendance forecasts were greatly overestimated, and that most museums earn less than half of their financial needs from admission fees and gift shop sales.

Since last spring, the museum dropped its admission fee and depended instead on donations at the door.

The result was a doubling of the number of visitors between Memorial Day and Aug. 31 – 4,639 visitors in 2006, versus 2,036 during the same dates in 2005.

Part of that boost came from the relocation of the Maine Visitors Center from a next-door building into the museum lobby, which was one of several strategies imposed to increase visibility and visitors.

Operating on a shoestring this year, the museum has managed to offer a diverse range of activities, such as Passamaquoddy basket-making workshops, films on the Passamaquoddy and the Acadians, and a pair of one-act plays presented by the Calais Community Theater.

Numerous regional and local groups also used museum space for meetings and special events.

The museum will be open seven days a week, from 10 a.m. to 5 p.m. until Columbus Day, Oct. 9. Beyond that, the museum will open in the winter for special events, such as the Artist Affaire on Thanksgiving weekend.

There are 16 directors for the museum. In addition to chairman Jim Porter of Calais, they are: Clifford Alexander of Calais; Dennis Brown of Calais; Arthur Carter of Charlotte; Harold Clossey of Calais; Suzanne Crawford of Robbinston; and Ronald Gardiner of Calais.

Others are: P. Bernard McAdam of Calais; Charles McAlpin of Calais; Darin McGaw of Baileyville; Duncan McGeachy of Oak Haven, New Brunswick; Bonnie Smith of Perry; Donald Soctomah of Indian Township; Dianne Tilton of Harrington; Sidney Unobskey of Robbinston and San Francisco; and Gail Wahl of Calais.