Opinion
Overture Center merits city help
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Also by Erik Paulson:
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- Overture Center merits city help (February 23, 2009)
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If tough times let you know who your real friends are, the Overture Center must be feeling very lonely right now. $28 million in the hole, with creditors calling and its trust fund gone, the Overture is running out of options. From the beginning, Madison has tried to have the best of both worlds and enjoy the use of the Overture Center while someone else owned it. By now, it is obvious that there will be a day of reckoning, yet the city has turned down each and every opportunity to get involved and prevent the crisis. Each time we do so, the future challenges mount. It is time for us to take our heads out of the sand and solve this before it gets any worse.
Some history is in order. The Overture Center is the result of a series of gifts from Jerry Frautschi. Frautschi decided Madison should have an unequaled arts facility, and that money should not be a barrier. Ultimately, he gave $205 million. All along, he was honest: This was a gift to all of us, and his involvement would end when the building was done, so it was up to us as a city to decide how to prepare for the future of the Overture. To help us, he gave more money than was needed to build it. We chose to use this as a trust fund, which would both pay off a loan for construction and defray the operating costs. The details of the trust fund are well-reported elsewhere, but the gist of it is the returns did not meet what was needed, — even after the City Council approved a 2005 refinancing — and in 2008 the trust was liquidated, leaving $28 million still to pay. Most of this debt will remain when the Overture runs out of reserves in 2011.
We as a city took Frautschi’s gift and gambled in the stock market. The first try was reasonable. However, when we lost, instead of stopping we used what was left to double-down in 2005. Not surprisingly, we lost again, but now the city leadership thinks that we can just walk away with no consequences. This is as outrageous as the Wall Street CEOs who risked and lost billions and still got bonuses while the taxpayers bailed them out. In the Overture’s case, it was the taxpayers who took the risk, and the taxpayers who have an obligation to own up to their responsibilities.
Mayor Cieslewicz deserves some credit here. He was, nearly alone, strongly opposed to the 2005 refinancing because he rightly viewed it as risky. The refinancing plan could not tolerate a faltering economy in its first few years, and it should have been obvious that with three years of Bush to go trying times were still ahead. The Mayor’s plan would have used the trust fund to pay off all of the debt and have the city own Overture free and clear. The Mayor, more than anyone else, has earned the right to say “I told you so” and leave us to pick up the pieces. Unfortunately for the Mayor, that can’t be an option for our elected leaders.
All along, the plan has been for the city or some other public body to own the Overture Center once the construction debt was paid off. The Overture Center recently presented a plan to pay off the remaining debt, which the Mayor pronounced “dead on arrival”. He was right. It was a terrible plan, but it was only a terrible plan because the city refuses to get involved. The entire city leadership calls the remaining construction debt a problem that the banks and Overture have to work out. Furthermore, the leadership insists that we really don’t have anything to worry about, because no matter what happens, Overture will remain. As one City Council candidate said, “It’s not like they can put it on a truck and move it to Chicago.”
There are real risks of not doing anything. If the banks foreclose on Overture, our “public” facility ceases to be public. If the banks own Overture, we lose our say in its future. We would likely get that say back, but under what terms? How many more times are we willing to gamble the future of the Overture?
The city can get involved without taking responsibility for all of the remaining construction debt, but we shouldn’t rule out putting taxpayer money into the solution. After all, it was our choice that the debt still exists. The city’s willingness to put money in will send a signal to other benefactors that their future donations will not go to waste and the Overture saga will finally be over. In the end, we want the city to have some role in the Overture. Every time we let someone else shape its destiny, things get worse.
Erik Paulson (epaulson@unit1127.com) is a Ph.D. student majoring in computer science.
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"The refinancing plan could not tolerate a faltering economy in its first few years, and it should have been obvious that with three years of Bush to go trying times were still ahead."
I knew it all along...it is obviously George Bush's fault that the Overature Center is going to go belly-up!!!
Maybe you should stick to computers, Mr. Paulson.
Why don't we just let the banks foreclose on the building? After they do, the City or a new arts district will be able to buy it back for pennies on the dollar, because as the article points out, it's not like they can load the building on a truck and move it someplace else. And, if a private organization purchases it, and it "ceases to be public," who cares? Best case scenario in my opinion. It can be funded privately (not by the taxpayer), maintained privately (not by the taxpayer), it will have an assessed value that will be paying property taxes (since it will be privately owned), and all of the educated, snooty, "artsy" folks will still be able to purchase tickets and see their wonderful shows without EVERYBODY having to pay for it. If we add $200 million onto the tax rolls, at the current mill rate of about $22 per $1,000, the new private owners would be paying $$4.4 million annually of property tax to the City.
I have followed the Overture Center saga closely since the beginning, and this editorial easly qualifies as the most inaccurate propoganda ever published.
The city did not gamble Frautchi's gift in the stock market. The Overture Center is owned by a private group, the Overture Development Corporation. The City surrended direct financial control as a price paid to insulate itself from financial liability.
The Overture Center is managed in an awkward private-public partnership. The ODC's books are not even public, ODC runs the financial show with broad approval from the city. Those crazy investment schemes were not hatched in city hall, they are the madness of the elites behind the ODC. The city gave the ODC largely free reign in investing ONLY because the ODC agreed to carefully specified limits on the city's liability.
The Overture Center was a private institution when the money was flowing. Now that the losses from bad decisions roll in, the public is invited to be the new owner. Sound familiar?
The public did not take these crazy risks, the ordinary citizens are hardly responsible.
Your distortions are disgraceful.
"Why don't we just let the banks foreclose on the building? After they do, the City or a new arts district will be able to buy it back for pennies on the dollar"
I just want to respond to this earlier comment: The city is not going to buy the OC at auction. The city wasn't willing to take it for free in 2005. The property might be worth $10M to a developer, just a wild guess.
The bank is unlikely to foreclose any year soon. The city is not going to pay any portion of the debt, ever, the public won't stand for such a scandal. The answer is going to have to be a private donor or donors. AFter the debt is paid off, the city MIGHT be willing to take it over and shoulder the high operation costs.
@10:34 -
The public, through the Common Council, had to sign off on the 2005 refinancing scheme that had the city backstop some of the loans. This refinancing was not entirely a scheme by SOMCAD/ODC. The city was a partner and knew what it was getting itself into, albeit with "limited" exposure. (Ignoring that the worst-case, which was certainly known at the time, was a possible foreclosure by the banks, which I think is pretty major exposure)
The public, through the Common Council, had the opportunity in 2005 to reject the refinancing scheme (which was obviously not going to meet its necessary targets).
The city decided early on that the crazy ODC/SOMCAD/MCAD was the way to go. We should have rejected it 10 years ago, we should have gotten rid of it in 2005, and I suspect the best thing to do now is finally cut our losses and be done with it in 2009.
-Erik
"The public, through the Common Council, had to sign off on the 2005 refinancing scheme that had the city backstop some of the loans. This refinancing was not entirely a scheme by SOMCAD/ODC. The city was a partner and knew what it was getting itself into, albeit with "limited" exposure."
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Eric, you now mention that "limited exposure" as if its a throw-away. Limited exposure means limited exposure. The city is making good on their part of that bargain. You just wrote an editorial stated that the city is responsible for the whole $28M disaster.
I argued vigerously against that 2005 refinancing in thedailypage.com forum, some of the council members were there defending their decision to support it. Their whole justification was that the city had such limited ability in the deal. Yes, of course they were idiots, we see now the overall harm that has been done to the community, despite that "limited liability."
But the answer is not now to stick the taxpayers.
I have an acquaintance in MAdison who is a longtime investment banker in Madison. For what its worth, he believes there are several wealthy candidates who might make the debt disappear. I think that is the only realistic solution. Otherwise foreclosure in 2 or 3 years. I think the banks will grudgingly limp along for that long, a foreclosure would suck for them too.
- DB
"The city decided early on that the crazy ODC/SOMCAD/MCAD was the way to go. We should have rejected it 10 years ago, we should have gotten rid of it in 2005, and I suspect the best thing to do now is finally cut our losses and be done with it in 2009."
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Well, you're buying the Paul Soglin position. Probably direct city ownership would have advantages, but I'm far from convinced that management inadequacies are really so significant. I think the OC runs reasonably well now. Soglin (and you) are overstating the management issue as a justification for a city takeover, the real motive being a permanent bailout.
I don't think a city takeover is necessarily a bad idea, but what's the rush? The OC can continue to operate with a city subsidy for a few years. Now that the smoke screen of the funny money (the borrowed-money endowment) is gone, we will learn about the REAL operating costs and income of the Overture Center. The city can make an informed decision in three years or so.
But until the debt is dealt with, the city will not and should not even discuss taking-over the OVerture Center.
-DB
"but I'm far from convinced that management inadequacies are really so significant. "
You're really better off not underestimating their inadequacies until you get to know the place a little better. Some of the stories would make unbelievable fiction.