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Thursday, October 23, 2014 |  Madison, WI: 39.0° F  Fair
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Citizen Dave: Why the Overture Center should get another $500k
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I could justify more tax money to maintain a world-class arts facility but that I couldn't stomach just vaporizing millions in the stock market if things didn't work out.
I could justify more tax money to maintain a world-class arts facility but that I couldn't stomach just vaporizing millions in the stock market if things didn't work out.

The Madison Common Council should pass an amendment to provide another $500,000 to the Overture Center when it comes up for a vote next week. It's not only the right thing to do -- I'd say it's a moral obligation.

But, first, as my friend Ald. Tim Bruer would say, a little history.

Overture was built with $205 million from philanthropist Jerry Frautschi. But as the building was being contemplated and completed questions were raised about how the city would pay for the running and upkeep of a building that was three times the size of the city-owned Civic Center that it replaced. At the time, we were experiencing the longest bull market in history, and somebody around Jerry had a bright idea. Take half of Jerry's money and instead of paying off the building, essentially take out a mortgage on it and invest the $100 million or so in the stock market. These smart people just knew that that would produce something like $1.5 million every year forever, and so Overture could be run and maintained with no added tax dollars thanks to the wonders of the stock market.

Then a funny thing happened. It turned out that the business cycle had not been suspended after all, and a bull market could turn into a bear overnight. By 2005, the investment play had gone south, and it had to be refinanced. By this time I was mayor, and was asked to support the refinancing of the market gamble, only this time city taxpayers would be put in the line of fire to pay the banks for the mortgage if the gamble didn't pay off yet again. The other option was for the city to buy the building for one dollar and own it free and clear with no debt.

There was tremendous pressure on me to support the refinancing scheme, but I was skeptical. So I did two things. First, I insisted that there be firewalls put in place before the taxpayers were tapped to pay the mortgage. So, if the market didn't perform, other pots of money would have to be emptied first before taxpayers were on the line. And second, I asked the Fiscal Efficiency Auditor (a new position I had just created) to analyze what would happen under various market scenarios.

Andrew Statz, the FEA, ran several scenarios and concluded that if there were just one even modestly bad market year out of the first three, the whole scheme would fail. So, after months of study and careful consideration, I told those pushing the plan on behalf of Jerry Frautschi that I would not support it, but I would accept the building for one dollar and promise to take care of it to a high standard.

Their initial reaction was, "Fine, we'll start drawing up the papers for the transfer of the building." But then, without telling me, they pivoted quickly to fight for the refinancing, putting city taxpayers in line for a hit. I fought as hard as I could for my plan, acknowledging that accepting the building for free also meant more costs in the long run for taxpayers because we'd have to run and maintain the building. My reasoning was that that was the responsible thing to do, and I could justify more tax money to maintain a world-class arts facility but that I couldn't stomach just vaporizing millions in the stock market if things didn't work out.

I lost that fight with only five alders out of 20 joining me. So, I accepted my defeat and became the biggest fan for the plan, because I realized that I didn't want to be right. If it worked, we really could have our cake and eat it too. There was no point in my predicting that the thing would crash and burn just so I could say "I told you so" later on. That wouldn't be in the city's or anybody's best interests, even though I couldn't see the investment making 8.25% annually in the market, which was what was needed to reach the income required.

But the nightmare scenario Andrew had sketched out is exactly what happened. The investments hit one bad year in the first three, and the banks forced the entity making the investments to get out of the stock market and retreat to safe, low yield products. That essentially ended the gamble with a big loss, and the city was on the hook to pay the mortgage after all the firewalls burned down.

What happened next was a lot of watching and waiting and staring across the table. Nobody was really sure how long it would take for the other pots of money to be eaten up, and at what level the city's liability really would end up at. I drew a line in the sand and insisted that we weren't going to buy a building for several million dollars that we could have gotten for free only a couple of years earlier. Jerry said that he was done and would provide no new money to bail out Overture from the mess that had been created at his own insistence. This made me somewhat peeved at Jerry, since it was his agents' pushing for the plan back in 2005 that got us into this mess in the first place. And now he just wanted to wash his hands of it.

All through this tense period, former mayor Joe Sensenbrenner was conducting shuttle diplomacy, since he was trusted and liked by everybody involved. Joe told me that he thought things could be worked out in the end without more taxpayer money for the bailout. He told me to be patient. I trust Joe, but thought he wasn't being realistic. He told me to continue to be patient.

Then in June 2010, out of the blue, I get a call while I'm roasting in the sun in Boston at my niece's graduation from MIT. Jerry Frautschi has relented, I was told, and was going to come through again. There was about $28 million in debt on Overture, and Jerry and Joe and some other donors would take care of about half of it while the banks would eat the other half. I had to stop being peeved at Jerry, who's not the kind of guy you want to dislike anyway.

But let's pause here and consider this.

A building that was free and clear of debt in 2005 now had $28 million in debt attached to it simply because of paper losses in the stock market. That $28 million could have gone into an endowment that would have helped with the long-term maintenance of the building. Instead, all that philanthropy was just being vaporized because of a bad gamble. It's amazing to me that there's been no investigative journalism into this. I was told that Jerry didn't really want to do the market gamble in the first place. So, who pushed him into it and what did they gain in terms of fees and investment charges? Somebody did well by the public's (and Jerry's) pain.

In any event, now that the debt was cleared, new questions needed answering. Who will own and run the building? Who will be responsible for the long-term costs of maintaining it? And who would work there? Would they be city employees or employees of some other entity?

So, what do you do when you've got a tough problem in this town? You appoint a committee and you get Mark Bugher to chair it. The committee worked diligently to try to reach a consensus on how Overture should be managed now that the debt was solved. The biggest mistake of my political career was appointing then former mayor Paul Soglin to the committee. I was advised against it by just about everybody (one alder asked me in so many words if I was nuts) but I did it anyway because I believed Paul could bring something valuable to the table. He didn't, but he did get the bug to be mayor again.

On a parallel track, throughout the summer and fall of 2010, my chief of staff Janet Piraino negotiated with the donors who were bailing out Overture. The clock was ticking because the donors and the banks had said that the council needed to pass a plan by December 31.

By November, almost exactly a year ago, we had a deal. The city would own the building and be responsible for its long-term maintenance while the building's programming and day-to-day operation would be run by a new non-profit. Tricky details about who would work for whom still needed to be ironed out.

I presented my plan to the Common Council and urged them to vote on it by the end of the year. But the council had other ideas. There were two problems with my plan. One was that it would shift some union workers to private employment. They would still belong to a union, but there was no way we could protect the same benefit package that they had had with the city. And the second problem was that, though I tried, I hadn't involved alders enough in the actual negotiations, so there was little or no council buy-in to the final product.

So, for the next several weeks, the council redid the negotiations that my office had just spent months working on. What they came up with was a plan, mostly the brain child of then council president Mark Clear, to have private ownership of the building and private operation of it as well. This was cleaner and less complicated than my plan, but it also meant even less protection for the workers.

And -- now we're getting to the meat of why the council needs to provide more money -- the council's plan begged the question of how Overture could make ends meet for the long-term maintenance of the building. Under my plan, that would be the city's responsibility, since we would own it. But while the projections suggested that Overture could run at an annual break-even (as long as it could raise a couple million dollars more in the private sector), there was no way that it could cover the long-term costs of replacing the HVAC system, roof, et cetera, as those things deteriorated.

So, Clear suggested that the city simply throw more money into the equation, increasing its annual contribution from the current $1.3 million to $2 million. Overture could then put away the extra money and build a sinking fund for the long-term care issues. I didn't particularly like it because I knew 2012 would be a tough budget year, and I didn't want to come up with another $700,000 or so for Overture. (It's important to point out here that my plan probably would have cost the city more in the long run, but I believed that when the big capital replacement costs started to come due we'd be out of the recession and better able to absorb them.)

In any event, while it wasn't exactly what I wanted, I thought the council's plan was reasonable and could work and so I supported it.

Which brings us to where we are today. What the council and I negotiated with the generous donors who bailed us out was a complete and complicated package. It's of a piece and so can't be picked apart. Each side gave up things to get others. It depends on more annual support from the city to make it work. In fact, I don't think that any of the legal obligations under the agreement are binding if the city doesn't come through with the money we promised.

And yet, Overture has been reasonable. They voluntarily agreed to take $200,000 less then what the city had promised a year ago. Which leaves a gap of $500,000 between what the mayor has proposed in his budget and what I believe (and the council should see) as a moral, if not legal, obligation.

At the end of the day, the big picture conclusion is this: The city of Madison and its taxpayers are getting a good deal. They're getting a world-class art center at a fraction of the cost of what it really takes to build, operate and maintain it. To balk at meeting only five-sevenths of the new obligation we promised only a year ago would call into question the very integrity of our city government.

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