Joel Gersmann, the late artistic director of Broom Street Theater, often joked that one day the city would be begging the Ho-Chunk to convert the Overture Center into a casino. Now, I don't know that the shift to slots and craps will ever happen. But it turns out that Gersmann was right to be skeptical of the $205 million cultural center's future.
Overture hasn't had an easy ride since its grand opening in 2004. Resident companies like Children's Theater of Madison and the Madison Repertory Theatre have struggled with finances. Former Overture president Robert D'Angelo was chased from his post by allegations of managerial improprieties. And at the beginning of this month, Overture financiers' clever plan to use a $100 million trust fund both to service construction debt and provide the center itself with capital reserves was once again on the rocks.
It turns out that the fund's chronically underperforming investments haven't generated the 8.25% annual return necessary to meet debt obligations. As a result, there will be no payment into Overture's reserve this year, and local businessman Jerry Frautschi, who donated the $205 million it took to build the facility, will be taking care of any gap in the debt service through the end of 2009 with up to five million additional dollars of his own money. (That "backstop" was written into a controversial 2005 refinancing plan put together in response to earlier shortfalls in the fund.)
Thus far, the city of Madison hasn't been on the hook for any of Overture's stumbles. But who knows what the future will bring? City comptroller Dean Brasser notes that the current refinancing plan runs only through 2011. After that, some other structure (and perhaps more "backstops" to satisfy lenders) will have to be negotiated. He notes that when Frautschi's obligation ends, a $2.5 million fund maintained by Overture's overseer, the Madison Cultural Arts District, could be tapped to cover any shortfalls through 2011.
If all of this sounds terribly complex, it is. And I haven't even mentioned the investment strategy that got Overture into trouble in the first place. Suffice it to say, it hasn't worked out very well. In fact, according to local economist Tom Bozzo, who at Isthmus' request reviewed a spreadsheet of the trust fund's holdings over the last 27 months, "their investment choices never gave them a chance." Bozzo adds that the decision to leave over 60% of the $100 million fund in conservative cash investments during and after the period in which the 2005 refinancing plan was being formulated cramped potential earnings in a big way. In Bozzo's view, the trust fund was undercapitalized from the beginning. (See Bozzo's blog, "Overture Center Finances: A Fine Mess".)
Some Overture insiders say that while the current financial situation is unfortunate, it certainly isn't fatal and no one should be panicking. Indeed, Dana Chabot, who serves as treasurer for the Madison Cultural Arts District board, argues that 2011 is a long way off, and there's still time for the current investment strategy to produce that elusive 8.25% return.
"We haven't lost money in terms of the investing we've done," says Chabot, noting that with the Frautschi firewall currently servicing the debt, the trust fund has an opportunity to increase its returns at a slower pace. "The point is that we haven't made enough to cover all of our obligations. We haven't really changed anything, though. This really is a long-term strategy."
Maybe a better market will confirm the wisdom of that strategy. But I wouldn't count on it. Over its short existence, Overture has set a pattern of lurching from crisis to crisis, and it's pretty clear that even the center's staunchest supporters recognize as much.
Although Chabot doesn't mention any names, he allows that some very influential folks were behind a move to get UW Research Park director Mark Bugher to organize an informal committee of local professionals that will look into ways in which Overture can be financed in the future. The committee has yet to meet, but Bugher says that a number of members will have "experience with major financial transactions" such as the development of complex government projects at the state level.
The first order of business, says Bugher, is to undertake a thorough review of how Overture is administered and how its financing is structured. Then it's time to begin brainstorming.
Bugher says that all options will be considered for financing Overture. At the same time, he doesn't endorse more government involvement at the local and particularly the state level. "I don't think anybody wants to place this thing on the public's back," he says without hesitation.
That's certainly heartening news for the taxpayer. Then again, I wouldn't be dancing a jig just yet. If Bugher and company don't come up with something spectacularly creative, it's hard to see how government wouldn't get involved. After all, no one really wants to see Overture become a teetering white elephant - or a casino - before it completes its first half-decade of operation.