For the [very] few who are interested in how major new cultural facilities are financed and funded, there are interesting conversations on-going in Madison, Wisconsin. The Overture Center for the Arts — half done now, to be completed in April 2006 — is attempting to regain its financial footing after a good idea met a bad stock market over the past few years.
In short, the donor’s original $100 million gift to support the construction of the facility was not spent on the construction directly, but rather placed in a trust and used to support $115 million in low-interest bond debt. The borrowed funds were used to build the facility, and the trust was to remain and grow to not only pay off the debt at the end of their term, but also provide on-going operating support (I know, half of you are asleep already, but stick with me).
Problem is, that debt needs to be refinanced now to avoid dissolving the trust. Says the article:
…without refinancing that debt, the trust, which has grown to $106 million, will be liquidated in the next year to pay for construction and Overture will be forced to somehow cover a long-anticipated $250,000 to $1 million annual shortfall for operation and maintenance starting in 2006….
If the new refinancing plan is rejected and the trust is liquidated to pay for construction debt, the city would have to decide in the next year whether or not to buy Overture for $1. In that case, the city would either run Overture itself, hire a private contractor to handle it or let the current operator, the quasi-public Madison Cultural Arts District, do so.
Without the trust, the building will be beautfully completed, but severely underfunded for its operations. But the city is balking at essentially co-signing the loan on the refinancing deal.
There’s lots of talk in the nonprofit world about productive public/private partnerships to achieve social and societal goals. But usually that talk is happy and hopeful because it’s unfocused and abstract. Financial risk and longterm responsibility have a way of adding weight and humility to the mix, and will be the true test of what kind of partnership we have here in Madison.
I had read a case of the Mississauga Arts Center in Ontario, which ended up in a similar predicament. They built a beautiful, amazing arts center, but then didn’t have sufficient money left for operations. It, of course, turned into a huge disaster that last I heard was crumbling and dying. It’s a sad state to build these beautiful (and huge and expensive) buildings only to not be able to afford to use them.