On June 22, 2010, three organizations, critical to the ownership and operation of the Overture Center for the Performing Arts in Madison, Wisconsin, executed a forbearance agreement with a consortium of lenders that were owed over $28 million dollars. In 2005 these lenders provided financing under a complicated financial arrangement that soured when the stock market collapsed in 2008.
Who Negotiated the Deal (not the city of Madison)
The three interested parties included the Madison Cultural Arts District (MCAD), a public body created under state law that presently operates Overture, and the Overture Development Corporation (ODC), which owns the building.
The third member of the consortium was the 201 State Foundation, presently a private fundraiser for Overture and the required new operator of Overture by terms of the proposed forbearance agreement.
Although the agreement requires certain actions by the city of Madison, as best I can ascertain, the city did not negotiate the agreement. Clearly the city of Madison is not a party to the agreement. This becomes critical since exercising certain parts of the agreement may violate city ordinances as well as state law.
The City is Obligated Under the Forbearance Agreement
The agreement contains three critical elements for Madison residents and their city government.
The terms require execution of the agreement by December 31, 2010. Secondly, the city of Madison must agree to purchase or otherwise take title to the Overture Center and all of the associated risks of ownership. Thirdly, the 201 State Foundation or its chosen successor will operate the facility.
These terms were imposed and inserted by the Overture Parties (MCAD, ODC and 201 State) not the lenders. The lenders want their money, they do not care who owns the building if they are paid.
The Overture Parties, without participation by the city of Madison or its residents who will pay the bills, imposed these terms. If at any time you believed that the banks imposed these conditions, rethink the matter.
The Overture Parties, without consideration for the time required for a deliberate and thoughtful response by the city of Madison, imposed these terms.
Originally I Supported Public Ownership
When I agreed to serve on the Ad Hoc Overture Committee, I supported public ownership of the facility. I was committed to making that work and finding the best operating model. I ranked the possible alternatives of ownership and operations as first: public/public; secondly, public/private; and lastly, private/private.
I am now convinced that private/private is the best alternative.
I arrived at that conclusion for two reasons. First, the cost of owning the building is beyond the resources of the city. Secondly, the controlling entity that operated the building must have a sound management plan, the confidence of the public, and an appreciation for transparency.
In a later article I will detail the specific problems with public ownership, but past history demonstrates that the proposed Focus Model and the forbearance agreement provide sufficient proof that only under the most unusual of circumstances will public ownership or management work.
The Building Is Too Opulent and Costly To Own
The building is too expensive for the city to own. Overture was designed and constructed with no regard for public ownership. This is evidenced by the soft floor tiles that were meant for walls, not the pressure of high heel shoes. There are 700 different style lamps (think light bulbs), many of which are not available ‘at retail’ and which are lacking in energy efficiency.
When the lamps are no longer manufactured or when there is a legitimate desire to make the building green, entire fixtures built into the walls and ceilings will have to be ripped out.
Finally, the published cost of the building is incorrect. The facility did not cost $205 million. For the last five years, I used the figure of over $250 million. It is clear that I was wrong. The cost of Overture is closer to $300 million.
This number is critical because it provides a guide as to the long-term capital cost to maintain the facility. These are not the costs of day-to-day operations but the kind of costs associated with replacing roofs and boilers, curtains and seats.
If we assume that over forty years it will cost 40% of the original construction, we are looking at $120 million, not $81 million, already a massive figure.
If the City Owns and Leases a $300 million facility, we need public bids. Transparency would also help.
On the management side, the arrangement for 201 State to operate the facility becomes more unnerving.
The very nature of 201 State negotiating the forbearance agreement, naming itself as operator, and presuming city ownership tells us what lies ahead. 201 State is adamantly opposed to transparency.
Perhaps someone should ask why the city of Madison should provide a public subsidy of over $2.5 million a year to this ‘vendor’ without competitive bid. There may well be other qualified operators, both public and private, interested in running Overture, if there is a guarantee of city subsidy combined with assurance of the city’s contractual obligations to maintain the building.
Of course, the city will probably not want to insult any donors and will manage to determine that bids are unnecessary because of the viability of this single source provider.
Author's note: more soon on structure, finances, the perfroming arts, and the Crystal Cathedral.
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The real problem is the long term maintenance of the Center. Paul's figure of $120,000,000 over the next forty years may actually be low using examples of what costs were incurred by other centers facing renovation over the years... To solve that pending obligation will take a very substantial endowment.
D'Angelo is correct in that neither MCAD or 201 State are not responsible for the current situation. Unfortunately, they are responsible for two of the current issues. First there are structural problems in the management of Overture. The original design created a board that was appointed by elected officials but responsible to no elected body. The new board will be even more insulated. That is why the recommended "Focus Model" receives so little support except from those most intimately connected to the problem.
No one should take comfort in D'Angelos' observation "Paul's figure of $120,000,000 over the next forty years may actually be low..." Whatever disagreements D'Angelo and I have had over the years is bridged by our shared belief that Overture must have a substantial endowment, a recommendation of our Ad Hoc Committee.
Linda Baldwin, chair of MCAD, wrote:
The City of Madison wasn't involved in the bank debt negotiations because they refused to be. Time and time again, the Mayor indicated that the city would not be a part of the debt settlement...So members of the volunteer and appointed boards, in order to save the Overture Center from going dark or being foreclosed on, moved forward with negotiations with the financial institutions to resolve the debt issue. Conditions of that settlement were imposed by the parties involved and the city was made aware of those conditions during the negotiations.
Invited to sit at the table, but refusing to participate in the negotiations is unacceptable leadership. The city can sit at the table and simply say "no' to participating in the debt settlement. Now the city finds an agreement in place with it owning the building, an unverified economic analysis, management conditions that do not meet its standards, and an unrealistic deadline. Wow.
Tom Bozzo raises one of the most critical challenges inherent in this discussion, one I hope to address in the future:
The real issue to address is whether the percent or so of city expenditures above what would have been spent on the old Civic Center is better spent elsewhere...
I disagree with Tom's categorizing the costs of Overture as being a small percentage of the city budget. In normal economic times even a million dollars is enormous, even though it is less than 1% of the city budget. Viewed by advocates who need as 'little' as $50,000 to continue a program, it is significant. Another was of looking at the issue is to examine the discretionary portion of the budget. As much as 95% of the budget are fixed costs related to basic services, the salaries of those who provide the services, and the equipment they need to carry out the services, ranging from fire fighting and election administration to police and date processing costs.
In a $200,000,000 budget, $1,000,000 is a significant amount. At this point $700,000 represents a significant expenditure in a city with record levels of poverty.
Pete Gruett knows relationships but not proportions. We are not a "tiny Midwestern hamlet saddled with a fancy, New York arts center", but we are a city of 220,000 with an Overture Center for the Performing Arts, a center far more expensive and delicate than anything else in our county, and it is more appropriate for a city of at least 1-2 million.
Given that it took from the 1960's until now for Madison to grow from 160,000 to 220,000, we are not going to hit 400,000 anytime soon, especially since annexation possibilities are virtually eliminated and the city adopted zoning and building codes that inhibit dense development.