Thomas MacMIllan Photo
Alderman Ernie Santiago admires the theater.
In order to get out of show business, the city plans to pay a theater management company $2.5 million to take ownership of the Shubert.
That deal might turn out to be the cheapest way for the city to keep the 100-year-old city-owned theater running and finance overdue renovations. And it might save the city money in the long run.
Aldermen are hearing that argument from city and theater officials as they consider a deal to sell the Shubert to CAPA, the company that runs the theater. The proposal goes before the full Board of Aldermen for a first reading this coming Monday night.
At least three aldermen aren’t convinced. One, Alderwoman Migdalia Castro, said the deal doesn’t offer enough of a return for taxpayers. She and Aldermen Doug Hausladen and Delphine Clyburn voted against recommending the deal when it came before the Finance Committee last week.
The three in opposition were outnumbered by seven aldermen on the committee who voted to send the deal to the full board for a vote, pending some clarification by the city on two sticking points.
The first sticking point: What happens if CAPA wants to mortgage the theater? And what happens if CAPA then defaults on the mortgage?
The second sticking point: The deal would require the city to bond for $1.4 million next year and make payments over the next 10 years. Can the current Board of Aldermen require future boards to do that?
The city promised to clarify those two issues before aldermen hold a final vote on the proposal next month.
The Deal
The Shubert will celebrate its 100th birthday next year. The theater, which has a storied history as a test stage for classic Broadway productions, shut down during the ‘70s and reopened in the ‘80s as the centerpiece of a revived downtown entertainment district.
The city took partial ownership of the theater about 20 years ago, and full ownership about 10 years ago. For the past 12 years, CAPA has been under contract with the city to run the theater. The city has chipped in between about $250,000 and $400,000 per year to keep the theater running.
Despite that subsidy, the Shubert has not been able to afford much-needed maintenance. It hasn’t had a major renovation in 30 years and now needs between $7 million and $8 million in repairs and work that would bring it up to code, said John Fisher, the theater’s executive director.
Coinciding with the theater’s “Centennial Plan,” the city is looking to sell the theater to CAPA. The deal would let the city off the hook for the $7 million in repairs and it would allow CAPA to more easily raise money for an endowment.
Working together, the city and the theater came up with a plan for the hand-off — the plan presented to the Finance Committee last week.
In a conversation this week, Fisher offered a breakdown of the money involved in the deal:
• Under the proposed deal, the city would pay a total of $4,545,000 over 10 years, including $2.5 million in capital repairs ($1.1 million of which has already been allocated) and a cumulative total of $2,045,000 in operating support.
• If aldermen don’t approve the deal and the city retains ownership, the city would pay $10,075,000 over the next 10 years. That’s $7,585,000 in capital repairs and $2,490,000 in operating support.
• The deal thus represents a possible savings of $5,530,000 over the next 10 years, according to Fisher.
“Financially, the city saves money and has no exposure going forward,” said Fisher. Meanwhile, CAPA would be able to build an endowment for the theater. CAPA could seek funding from sources that won’t currently support it because it doesn’t own the Shubert. “Some places just don’t fund municipal-owned buildings.”
Mike Piscitelli, deputy economical development administrator for the city, presented the plan to the Finance Committee. Here are the highlights:
• The current fiscal year’s budget includes $1.1 million in capital funding for the Shubert. The city would supplement that with another $1.4 million in the next fiscal year, adding up to $2.5 million. CAPA would be tasked with raising the other $4.6 million needed for physical improvements. $4 million of that would come from the state.
• Over the next 10 years, the city would gradually reduce its annual operating subsidy to the theater, eventually eliminating it entirely.
• The property title would transfer to CAPA as soon as aldermen approve the deal, said Fisher. The sale price: $1.
• The agreement would require the city’s approval if CAPA decides to sell the building. And the deal states that the building has to remain a theater, with at least 150 active nights per year.
• If CAPA violates any of the requirements of the deal, the city would have a “claw-back” provision to re-take ownership of the building.
• Among the physical improvements would be the construction of a new, 200-seat “black box” performance space at the Shubert, in what is now office space. This would give the theater a venue for rehearsals, performances, functions, and conferences, providing another revenue stream for the theater.
Not-For-Profit
At last Wednesday’s Finance Committee meeting, Fair Haven Alderwoman Castro and others began firing tough questions.
Why would the city invest all this money in the theater if CAPA is buying it? Castro asked. “How will it benefit the taxpayers?”
“Two ways,” Piscitelli said. For one, the city would no longer be responsible for capital improvements. “There will always be more that has to be done to the theater,” but it wouldn’t be the city’s problem anymore. Second, the city would eventually eliminate its operating subsidy.
Dixwell Alderwoman Jeanette Morrison raised the specter of the Palace Theater (pictured above), the long-shuttered venue that sits just across College Street from the Shubert. What’s to prevent CAPA from walking away and leaving the Shubert to the Palace’s fate? she asked.
“We’d take it back again,” said John Ward, a lawyer for the city.
“And do what?” Morrison asked.
“CAPA came to us with a business strategy that makes sense to us,” Piscitelli said. “They know how to make it work.”
CAPA has kept the theater in the black for 11 years, even through a difficult recession, said CAPA President Bill Conner. “Endowment money is hard to raise, but we think we can do it.”
If the city doesn’t put up $2.5 million for capital repairs, could CAPA come up with the money? Castro asked.
“If you didn’t do the 2.5 million we’d have to figure out another strategy,” Conner said. “We’re trying to raise $7 million for the building and $4 million for the endowment. We don’t really see another source on the capital side.”
When CAPA owns the building, would the city be able to collect taxes on the property? Morrison asked.
Nope, Conner replied. “We’re non-profit.”
Later, during the committee’s voting session, Castro called the deal “not responsible.”
“We shouldn’t have our taxpayers paying that and especially committing them for so many years,” she said. “We’re paying to get more debt.”
Castro, Hausladen, and Clyburn were outnumbered 7 – 3, as the committee voted to send the matter to the full board without a recommendation.
A Bad Precedent?
The Shubert’s star-studded lobby.
Castro later aruged the deal would set a bad precedent. The city would be giving up prime real estate, and paying for the privilege, she said. “All the non-profits are going to say, ‘You did it for the Shubert …’”
Castro said the city should handle the theater sale the way it did with the sale of the Martin Luther King School on Dixwell Avenue: by negotiating for a set of benefits to the city.
On the topic of benefits, Fisher said the Shubert brings an estimated $20 million into the city each year in the form of things like restaurant meals and parking fees. The Shubert attracts people to downtown New Haven, which translates into more jobs for New Haven, Fisher said.
Ninigret Partners consultants put the estimated economic impact at $14 million per year. The theater brings 140,000 visitors downtown each year, 79 percent of whom are from out of town, the consultants found. “Shubert patrons represent approximately 32 percent of total downtown restaurant spending in the four-month period of the Broadway touring productions,” Ninagret Partners’ Kevin Hively wrote in a February letter to Kelly Murphy, the city’s head of economic development.
The theater also offers a number of educational and training programs for New Haven public school students who are interested in the arts. It has programs during the school year and during the summer, brings kids into see shows, organizes “master classes” for students when performers are in town, among other things.
“I’ve always been a great supporter of the Shubert. I know it brings economic help to the city,” Castro said. “I understand the process, but it doesn’t add up.”
She said the deal should include provisions for CAPA to eventually pay back the city for some of the money it’s putting in.
“That would make sense if we were a commercial business,” said Fisher. “As a not-for-profit, we have to raise a million and a half dollars every year to operate the theater.” Any revenue goes back into the business, he said. Paying the city back is “not really viable,” not for a not-for-proft and especially not for a performing arts organization, he said.
More Discussion?
Fisher (right) gives aldermen a tour in March, 2012.
If that’s the case, then why not sell the theater to someone who can turn a profit on it? Downtown Alderman Hausladen raised that question. “Nobody’s made the case that the Shubert shouldn’t be sold off to anyone at the highest bid.”
Hausladen stressed that he expects to end up in favor of the proposal; he just wants to have more public discussion first.
“There’s an assumption that we’re going to sell it to CAPA and that CAPA is the only one who would bid on it,” Hausladen said. “That’s literally what we’re saying: We’re going to sell it to a non-profit and keep it off the tax rolls. … I’m going to be in favor of this, but you have to make that case to me on the record.”
Without a full discussion of all the options, “we don’t know what would be best for the city of New Haven,” Hausladen said.
The city hired a consultant, AMS Planning & Research, to provide advice on what would be best for New Haven. AMS found that a new RFP process is unnecessary because CAPA has shown it can operate the theater, they would probably emerge as the most qualified bidder, and a new operator would require several years to prove itself, which would delay improvements at a critical time.
Click here to read AMS’s report.
An appraisal found that the value of the property is the value of the land minus the cost of demolishing the building, Fisher said.
Given the small size of the theater — 1,600 seats — it could only be run by a not-for-profit, said Fisher. Almost all theaters of that size are run as not-for-profits, including Long Wharf and the Bushnell in Hartford, Fisher said.
Aldermen will vote on the proposed sale in November.
1) The theater is unquestionably the best use of the property for economic stimulation; it bring significant visitors to the city whose spending far outstrips our current annual payment.
2) NHI's number don't really add up but if they're in the ballpark, the cost comparison favors sale
The current cost over ten years including deferred repairs would be (($400K subsidyx10)+($8M repairs))=$12M
The city's projected cost of the transfer is (($2M subsidy)+($2.5M repairs))=$4.5M (oh yeah minus one dollar paid by CAPA)
3) Of course its legal. The BOA makes long term financial commitments all the time; except many of them don't have a clear payback like this one.
4) The risk is that we might be back in the same boat if CAPA fails; is that a reason not to try?
5) Any non-profit that could definitively prove this kind of cost advantage should be given the same consideration. Those that can't should refrain from asking.