On a weekday morning in mid-July, an uneasy group of curators, administrators, and support staff gathered in the Corcoran Gallery of Art’s first-floor auditorium.

A staff meeting like this wouldn’t normally be a source of anxiety, but the Corcoran employees were still reeling from a stunning announcement a few weeks earlier: The board of trustees was considering selling the museum’s iconic 19th-century building, a block from the White House, and moving to another location.

Rumors that a move might be in the works had been circulating since late 2011. Then on June 4, the news broke. The trustees had authorized a search for a possible new home.

William Wilson Corcoran, a Southern sympathizer, reestablished himself in Washington after the Civil War by opening Washington’s first art museum. Photograph courtesy of the Library of Congress.

Washington’s arts community was outraged: This is the oldest art museum in the city, for God’s sake. Its collection of 19th-century American paintings is among the world’s finest. “You might as well move the White House to Arizona,” says former Corcoran director Roy Slade. No one could understand it. How could abandoning this magnificent structure—the Corcoran’s very soul—benefit the institution?

Trustees and top executives insisted they had no choice but to consider moving as part of an effort to chart a sustainable path forward. While the Corcoran’s College of Art & Design is on reasonably solid financial footing, the museum’s dismal condition threatens the institution as a whole. Attendance has fallen precipitously, and last year the Corcoran brought in less than half the donations garnered by the Phillips Collection, a smaller private museum that faces many of the same challenges as the Corcoran in competing for visitors and donors in a city rich with museums.

The Corcoran posted a $7.1-million shortfall on a budget of $27 million in 2011—meaning that about a quarter of its budget was deficit spending. It expects to post another deficit of at least $7 million for 2012. Management has borrowed from the endowment to cover operating expenses. And maintaining the 115-year-old building—which by one estimate needs $130 million in repairs—drains precious cash. (The Washingtonian’s late publisher Philip Merrill was briefly a Corcoran trustee, from 1999 to 2002.)

At the start of the July staff meeting, the Corcoran’s chief operating officer, Lauren Garcia, stepped onto the stage. Though Garcia had been in her job for only a year, museum employees say they had come to see in her much of what they distrusted in the Corcoran’s leaders.

Garcia had arrived at the Corcoran with a professional background in homeland-security contracting—not in the arts or museum world—and staff members snickered that she had been hired because she was the board chairman’s neighbor. Employees came to believe she was a driving force behind the decision to consider moving.

Garcia called the staff’s attention to a video playing on a screen above the stage, according to two people in attendance. The footage showed water bursting out of pipes, gurgling up from a drinking fountain, and washing over cement floors. The video was titled “Flood Resulting From Thunderstorm.” The damage had occurred on July 10.

The video was a compilation of clips edited together. At one point, ten different flood shots appeared onscreen at once, artfully spliced into a single arrangement. Someone had spent time producing this.

Garcia said the purpose of the video was to show the extent of the damage and thank the employees who had contained the deluge: “I want to show you what a great job our operations staff did.”

But many in the auditorium didn’t buy it. “We all saw it as propaganda to get us out of the building,” says a Corcoran employee. “They are using every little thing that goes wrong with the building against the building and against us.”

Such distrust has become common, according to interviews with more than 75 people, including current employees, ex-trustees, and former executives. In many of those interviews, dissatisfaction with the institution’s current leadership was a recurring theme.

Staffers believe the Corcoran’s decision makers see the Corcoran no differently than any other failing business; for the first time, the museum is being led by three people—the board chair, the director, and the chief operating officer—who have no professional background in the arts or museums. Employees say they feel marginalized by the army of consultants called on for help. And leaders’ connections to Alexandria—the only location mentioned in early news reports as a possible destination for the institution—have raised alarms.

“We don’t trust them,” says a Corcoran employee. “If we could hold a vote of no confidence, we would.”

Speculation about a move to Alexandria has been the biggest source of controversy. Such an action now appears unlikely, for logistical and possibly legal reasons, but critics argue that the prospect has sidetracked Corcoran leaders at a critical time.

“The time, money, and resources that are now being devoted to the potential relocation of the museum outside of Washington—a relocation that would violate the museum’s founding document—is the quintessential definition of corporate waste and mismanagement,” wrote Andrew Tulumello, a lawyer working with Save the Corcoran—a coalition of students, alumni, faculty, and donors working to prevent the sale of the building—in an October 9 letter to Corcoran leaders.

Now, with the institution’s very existence hanging by a thread, leaders must not only restore its finances but also regain the trust of donors, staff, students, and other supporters.

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This isn’t the first time the Corcoran has faced possible collapse. The institution has a long history of financial troubles.

The roots of the current crisis stretch back to a warm evening in June 1989, when an angry crowd assembled outside the museum’s 17th Street building. “Shame, shame, shame,” the protesters chanted, according to the New York Times.

The Corcoran’s decision to cancel a 1989 Robert Mapplethorpe retrospective drew protesters and hurt the museum’s reputation. Photograph courtesy of the Washington Post/Getty Images.

Their fury had been sparked three weeks earlier, when Corcoran director Christina Orr-Cahall canceled a retrospective of photographer Robert Mapplethorpe’s work. The exhibit—financed in part by the National Endowment for the Arts, a federal agency—contained some of the homoerotic and sadomasochistic photographs that made Mapplethorpe controversial. With the NEA’s budget up for congressional review—and its grant-making decisions already taking heat from conservative lawmakers—Orr-Cahall worried that the exhibit could drag the Corcoran into a political mud pit. So she scrapped the show.

Washington’s art community was appalled that the Corcoran would buckle so readily. “This was just inexcusable,” says Andrea Pollan, who runs an art gallery and is an independent curator. She and her friends told everyone they knew to gather outside the museum on June 29. The turnout of 700 protesters was considerably higher than they’d hoped for, and with the culture wars already in the news, the demonstration drew international attention.

Although it had taken more than a century to build, the Corcoran’s reputation was unraveling with alarming speed.

The museum had been established by William Wilson Corcoran—a cofounder of Corcoran and Riggs bank, the predecessor of Riggs Bank—who collected works by painters of the so-called Hudson River School, whose sweeping landscapes projected a romantic image of American life.

Corcoran commissioned an architect to build a gallery, but construction stopped at the start of the Civil War. Corcoran was a Southern sympathizer, and after the battle of Bull Run he was briefly arrested before fleeing to Europe. Union leaders confiscated his unfinished art gallery and converted it into a depository for army provisions.

Upon Corcoran’s return to Washington after the war, the Secretary of State attempted to charge him with tax evasion. But in his art collection, Corcoran found an opportunity to reestablish himself. In 1869, he turned his private gallery into Washington’s first art museum, dedicated to “encouraging American genius.”

President Ulysses S. Grant attended the building’s opening, and by 1878, 100,000 visitors were arriving each year—more than twice the turnout at New York’s Metropolitan Museum of Art, according to an article in the journal of the Historical Society of Washington, D.C. “At the head of all the buildings dedicated to art on this continent stands the Corcoran Gallery,” the New York Evening Post gushed.

In 1897, the Corcoran’s growing collection and recently established art school moved into its current 17th Street home—designed by Ernest Flagg—which Frank Lloyd Wright called the “best-designed building in Washington.” The Corcoran served as America’s unofficial national art museum through the early 20th century.

That changed in 1937, when Andrew Mellon donated his massive collection to establish the National Gallery of Art. Washington’s cultural landscape got more crowded in the 1960s and ’70s as the Smithsonian Institution opened the National Museum of African Art, the Hirshhorn Museum and Sculpture Garden, and the Renwick Gallery. These federally supported institutions enjoyed a taxpayer subsidy that the Corcoran could never obtain.

But even without federal funds, by the 1970s the Corcoran had established itself as a Washington treasure. The museum became an important crossroads for artists in the area. Locals turned up for painting classes. The Corcoran’s annual ball was a key date on the city’s social calendar. And its biennial exhibits garnered national attention. “It was kind of the little institution that could,” says Kathryn Keane, a former deputy to the director.

Then the Mapplethorpe controversy hit.

Orr-Cahall resigned as director in December 1989. But the Corcoran had already become a symbol of gutlessness in the face of intolerance. “It is going to be a long road back,” Jane Livingston, the curator who organized the Mapplethorpe exhibit, told the New York Times after resigning.