When the Terra Museum’s door slammed shut forever last week, the reverberations were felt down the street at the Art Institute. According to folks at the Terra, the closing of the boutique museum on North Michigan led to two big changes at the grander institution. Beginning in January, 50 of the Terra’s most valued paintings and 350 works on paper will be ensconced at the Art Institute on long-term loan. The combination of the two museums’ holdings will create one of the world’s best collections of American art, Terra officials say. But before it could happen, the Art Institute had to undergo the museum equivalent of an extreme makeover. Under its old setup, works from the Terra collection, which runs up to about 1940, would have been split: art made prior to 1900 would have gone to the American collection, 20th-century work to the department of modern and contemporary art. And that would have been a deal breaker. “We said we wouldn’t do it under those circumstances,” says Terra Foundation chairman Marshall Field V. “So Jim Wood gave the American department all the pictures up until World War II.”

Whack. Instead of splitting the Terra collection, former Art Institute president James Wood (who retired this fall) took a cleaver to the 20th century. Last February the Art Institute announced that it would spin contemporary art off into a new department that includes everything from 1950 on. At the same time the cutoff for work in the American and European collections was moved up from 1900 to midcentury. That meant the Art Institute’s strong holdings in modernism, a distinctly transcontinental movement, would be divided by continent and dropped into the dustbin of history, along with colonial portraits on the one hand and medieval altarpieces on the other.

“Having a department uniquely for contemporary art is probably a good thing,” says SAIC adjunct associate professor Charles Stuckey, the Art Institute’s 20th-century curator from 1987 to ’95. “From my point of view, the big issue is separating people who went to great lengths to associate themselves with a global art community–artists who were friends, like Duchamp and Man Ray.” Stuckey says artists have been categorized by nation of birth because museums grew up in the intense nationalism of the 19th century. Now, finances permitting, he says he’d keep the 20th century intact “as a global situation” and endow a new contemporary department that would specialize in the works of living artists. “It’s sad that Americans will be sequestered–made to seem more isolationist and provincial,” Stuckey says. “But in the end it’s really just a filing system, and every filing system is loaded with absurdities.” Art Institute American art curator Judith Barter, who selected the 50 paintings, says the reorganization came about primarily because the department of modern and contemporary art had become too unwieldy.

The Terra Foundation also stipulated that the 50 paintings, which go to the Art Institute on 15-year renewable loan (and may be rotated), must not be warehoused. “The work has to be on exhibit or it comes back to us,” says Terra Foundation director Elizabeth Glassman. According to Glassman the foundation will use art that’s not on display at either the Art Institute or the Terra’s offshoot in Giverny, France (which will remain open), for small-focus shows in venues like “the Smart, the Block, or the Toledo museum.” The aim will be to push American art both in Chicago and internationally. In September the Terra announced that it will sponsor a show of American art–including one of its prize holdings, Samuel F.B. Morse’s Gallery of the Louvre–at the Louvre itself in 2006. “We spent a year and a half making a strategic decision as to whether to remain a stand-alone,” Glassman says. “In the future we’ll be both making grants and doing our own projects.”

Meanwhile, there’s plenty of buzz about the Terra’s Chicago real estate, three buildings–one of which has landmark status–on North Michigan Avenue. The foundation, which conservatively has about $420 million in assets, is likely to stay in its offices above the museum for at least a year. CFO Donald Ratner says there are no immediate plans to sell the buildings; investment income from the proceeds of a sale wouldn’t bring in as much as the rent from current tenants Starbucks, Hanig’s Footwear, and Garrett Popcorn Shop. The roughly $3 million a year that will be saved on operating the Chicago museum will be funneled into grants and programming. And those messy legal battles stemming from an attempt by founder Daniel Terra’s widow to move the collection and the foundation to Washington, D.C., may finally be out of the way. A recent Supreme Court refusal to consider a settlement appeal ended one, and Ratner says they’re close to resolving another suit as well as a dispute over the foundation’s liability for about $1 million of Judith Terra’s legal costs.

The Terra closed on a high note, with “Chicago Modern,” one of its best-received shows ever. That was possible, Ratner says, because the museum structured a generous employee-severance package that rewarded those who stayed with the ship. The closing cost 50 employees their jobs (6 others, including a curator, the director of education, and the registrar, moved over to the foundation payroll). The museum provided outplacement services and began vesting severance pay in July. Penalties for leaving before the October closing were severe: an employee who left a month before forfeited half of the severance money, and anyone leaving three months before gave up 90 percent. “We wanted to go out at full speed, and we needed them,” says Ratner, who maintains that morale was high for an organization on the way out.

“When we have our opening show of the combined collection in April you’ll see why we did it,” Field says. “It’s going to be smashing.” The Terra paintings will hang among the Art Institute’s American works in the Rice Building. Daniel Terra–who built his museum because he couldn’t come to an agreement with the Art Institute–will be honored in an alcove there.

Art accompanying story in printed newspaper (not available in this archive): illustration/Godfrey Carmona.