Overture Center's shaky finances worry Madison

Daily Reporter (Milwaukee), Oct 11, 2007 by Paul Snyder

Zach Brandon had a premonition things would end up here.

The Madison alderman was just as wary as Mayor Dave Cieslewicz in 2005 when the city bought into the Overture Center's refinancing plan: a trust fund to help cover the center's lingering construction debt as well as its continuing operating costs. The success of the trust is based on the success of the stock market, and both Cieslewicz and Brandon said it was too much of a gamble with taxpayer money.

The trust fund fell from roughly $105 million to almost $100 million during the summer, and while it rose to $103 million at the end of September, that figure is still below the $104 million mark necessary to ensure Overture can make its debt payments at the start of the next decade.

Under the current refinancing plan, by 2010, if things go wrong, Madison taxpayers would have to make some of the debt payments.

"In some ways it's a really helpless feeling at the moment," Brandon said. "You're in the car, but you're not in the driver's seat or even the passenger's seat. You're stuck in the backseat just watching this whole thing play out."

Prior commitments to attend the city's Board of Estimates meeting Tuesday night kept both Brandon and Ald. Mike Verveer, Madison Cultural Arts District Board members, from attending the MCAD meeting Tuesday, but the board voted to form a working group to analyze the long-term financial predicament Overture could find itself in if struggling numbers continue.

"It will look at a long of things, and certainly how better to partner with city, county and state governments," said Dana Chabot, the board's secretary.

Chabot said the work group will work well into the spring, and that while recent developments with the trust fund have raised concern among the directors, timing isn't critical, and nobody's in panic mode yet.

"We have backstops in place that will make it able to maintain debt service," he said. "The ramifications of this might not really hit until 2010 or 2011, so we have a few years yet, hopefully, to be able to figure this out."

Jerry Frautschi donated $205 million to build the performing-arts Overture Center in 2001, of which $100 million was set aside in a trust that was expected to generate enough market interest to provide collateral for a $115 million loan also used to build the center, make loan payments and provide $1.4 million in annual operating costs.

Unfortunately, the market ran cold following the events of 9/11 and did not produce as expected.

The refinancing option decided upon broke the $115 million load into two long-term loans: a $27.7 million 6-year loan that holds the city responsible for collateral; and a 35-year loan whose collateral is covered by the trust.

"I always felt it was too optimistic and I remain very skeptical that it will be able to produce the kind of income we need," Brandon said. "The interest rate grows with every gap we face in the trust fund."

Chabot said the MCAD harbors no regret over its decision to go with the refinancing plan in 2005.

"There wasn't a real clear alternative to consider," he said. "That's what we're back to now. We just need to come up with a contingency plan, a plan B, as a matter of prudence. We know we have to do that."

Brandon said the refinancing plan was plan B.

"This is plan C," he said. "The difference is now city taxpayers could be on the hook for millions of potential dollars."

Brandon said he has yet to learn the specifics about the work group approved Tuesday. But he added it will be important to see both how quickly group members can act and react to market changes and how they can resolve Overture's fundraising struggles.

Additional support from Madison taxpayers is not an option, he said.

"There seems to be a wink and nod sentiment around this that if all else fails, the city will pay off the debts," Brandon said. "That's not the case."