This is a continuation of the minutes of the October 10, 2016, meeting of the Crystal Lake Civic Authority meeting.
Raue Center Financial Review
A review of the finances of the Raue Center was presented and it was noted that the Raue Center
has operated with losses in each year since at least 2011.
It was noted that the Williams Street Repertory Company had been created in 2013, but the finances were not separated from the Raue Center until 2014, as per an audit recommendation.
Gary Reece asked how they were able to depreciate property since they do not own the building, and Mr. Filippini replied that the value may be in the lease itself.
Chairman Hayden asked about business deductions, and the Raue Center’s auditor, Mary Miller, advised that they can depreciate assets.
Detailed revenues versus expenses were presented, and Mike Splitt asked if the revenues included the City’s contribution from hotel taxes.
Mr. Lewis stated that they were.
He stated that for revenue bonds, more concrete documentation would be needed regarding that allocation for the years ahead.
Mr. Filippini stated that an agreement between the City and the Raue Center may wish to include conditions as to what the Raue Center needs to do, because there is currently no formal grant agreement for that funding.
Lisa Waggoner asked if the City would be willing to commit hotel tax funds.
Mayor Shepley stated that the City Council would be amenable to consider committing to longer periods of time.
Gary Reece asked what would happen if different City Council members are elected over the years.
Mayor Shepley stated that the ability to bind a future City Council would need to be looked at, and noted that if hotel tax revenues dry up, the City would not want to dip into its General Fund.
He stated that the City Council could consider a longer commitment of hotel tax dollars in a “not to exceed” amount.
Mr. Filippini agreed, adding that it would need to be clear what the Raue was expected to do and how the monies would be used.
Mayor Shepley stated that theoretically, a condition could be made that the monies go first to pay down the debt service or the bonds and any remainder could be used for general operations.
Mr. Filippini agreed that could be done.
Mr. Kost added that showing feasibility was a legal requirement for issuing the bonds, and such language would help.
Mr. Lewis added that more information was needed as to why an increased amount had been budgeted by the Raue Center for the Stargazers ball, as well as regarding revenues from the Raue Center’s Oktoberfest, the Raue Now Business, and the Grants and Foundation Support from FY2015-16. Regarding budget vs. actual since FY2014, Mr. Lewis stated that more information was needed regarding the leases.
He also stated that information was needed as to what steps will be taken to grow the net revenue to pay the principal on the debt and not just the interest.
Regarding possible loan forgiveness by Home State Bank, he stated that although that would reduce the debt burden, the current budget provides net revenues sufficient to pay $60,000 of debt service on the Authority Bonds and $35,000 for the annual payment on the lease obligations of the Corporation.
He noted that converting the loan to bonds would not ensure the operations of the Raue center would generate sufficient funds under the amended lease agreement to pay the Authority Bonds, and the CCA issuing the bonds does not guarantee the bonds will be paid.
Mr. Lewis presented concluding considerations as follows:
Given the poor financial situation of the Raue Center, if the CCA issues Authority Bonds, the CCA should prohibit the bank from transferring ownership of them so that a 3rd party investor would not have recourse back to the CCA.
Mayor Shepley noted that any 3rd party investor would be well aware of the risks, and if so, what possible recourse could they have, unless there were misrepresentations.
Mr. Lewis stated that from business standpoint, it would be hard to get a 3rd party investor anyway, but he had been advised that it was possible that Home State bank might seek another bank, and also, if something were to go wrong, they would try to find an error on the CCA’s part.
Mayor Shepley asked what would happen in that case and if the Directors liability insurance would “kick in”.
Mr. Filippini stated that was a possibility, but the issue was that if the CCA issues the bonds they need to have a reasonable expectation that the bonds can be paid.
The risk could be that if there were a failure and it could be said that expectation had not been present.
He stated that the CCA’s chief consideration was whether or not they felt comfortable with issuing bonds and to what degree, and to make sure there was at least a reasonable basis for payment.
Mr. Reece added that if there were a default, the CCA would probably never be able to sell more bonds, and Mr. Kost agreed that it would certainly be awhile before that could be done.
Mr. Lewis continued by stating that the Raue Center’s strategic financial plan should also take
into account other capital needs it will need to address throughout the life of the bonds, such as
improvements and maintenance, and eventually they will probably need to do another borrowing to address future capital needs.
He stated that the CCA and its attorneys should determine whether it is ultimately responsible for all or a portion of the loan and therefore has the legal authority to issue its Authority Bonds to refinance the loan.
Mr. Kost stated that the CCA has the authority to acquire, purchase, improve and hold title to the
He noted that the current encumbrances were a result of previous CCA Board action many years ago with Home State Bank and because of those actions and the lack of documentation, the CCA was now basically starting fresh with the ability to acquire a building free and clear of obligations, and it was not necessary to get into past CCA Board actions.
Chairman Hayden asked if the CCA had a bond rating, and Mr. Lewis stated that it did not.
Discussion with the Raue Center for the Arts representatives regarding its Financial Condition.
A detailed discussion ensued between the CCA Board, members of the audience from the Raue Center for the Arts, and all in attendance.
Michael Costigan, a member of the Raue Center Board, asked if the CCA could charge rent once the loan is paid off. Mr. Filippini and Mayor Shepley stated that it could, and Mayor Shepley added that there was already an agreement in place for the CCA to receive $100 per year for 99 years.
Mayor Shepley noted that the CCA has no legal mechanism to transfer ownership of the property.
Gregg Daniels confirmed with Raue Center Executive Director Richard Kuranda that the Raue Center’s finances are audited annually.
Mr. Kuranda stated that the Raue Center had a volunteer Board of Directors who were dedicated to building a strong business for the City and the community, and honor past donors.
Mayor Shepley assured the Raue Center representatives that this process was to ensure the long term well being of their organization.
Gary Reece asked if PMA had seen the Raue Center’s balance sheets for the past few years, and Mr. Lewis stated that they had not. Mr. Reece stated that he would like to see those balance sheets before making any decisions.
Tom Hayden asked what else the CCA could do to assist the Raue Center and if they had explored grants.
Mr. Kuranda stated that there were no state grants at this time, and any federal grants are routed through the state; however, the Raue Center was pursuing a landmark designation on the federal level to open up some funding.
He added that with the now active CCA, the Raue Center would welcome exploring any other possibilities.
Mike Splitt asked if having a landmark designation would tie their hands regarding future improvements.
Mr. Kuranda stated that that there would be restrictions, but the designation would also open up a whole slew of funding opportunities for maintaining historical buildings.
In response to questions from Tom Hayden, Mr. Kuranda stated that they had 220 events last year, and had also provided free rentals for community groups.
He stated that more profitable actions were in offering longer running shows with the Williams Street Repertory Company and they had high hopes that would continue to grow with donors.
He advised that it was now a professional company which had joined Actors Equity and could mount shows for 4-6 week runs at a lower cost and cultivate new donors.
He also advised that the Raue Center was partnering with Georgios and Retro Bistro, as well as booking popular rock tribute bands.