Part Two of a Two-Part Series CenterStage's development over the years has proved to be a fountainhead of scrutiny and distrust by local arts boosters and budget-watching city residents. Skeptics voiced a litany of concerns along the way, questioning the city's track record with public-private development ventures, the failure to include local arts groups more, the financing of the projects and the fact that some of the region's richest and most influential figures call the shots when public money is on the line. In September, this magazine reported on the progress of CenterStage, which was marking its fourth year in operation. Contributing writer Garry Kranz covered the center's efforts to woo back resident performance groups that were taking shows elsewhere, apparently because rental rates had priced them out of the venue. In this installment, executive editor Jack Cooksey explores how CenterStage operates in comparison to venues elsewhere. Read Part One here.
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When the doors to the Landmark Theater opened for humorist David Sedaris on Oct. 19, his audience was the first to lay eyes on a host of improvements to the 87-year-old theater that some Richmonders still call "the Mosque," a name that carries the history of its Moorish Revival design. Its $60 million facelift includes a new façade, new concessions, new restrooms, new seats, new theater acoustics, new elevators and updated safety features. The Landmark's reopening begins another chapter for Richmond CenterStage by returning its biggest, grandest venue —with 3,606 seats — to a performing-arts portfolio that includes the 1,810-seat Carpenter Theatre and adjacent Dorothy Pauley Square on East Grace Street. Getting the CenterStage properties to this point took a total outlay of approximately $133 million, some of it still earmarked to finish Landmark renovations. Taxpayers' contribution — from city, state and federal funding — amounts to more than one-third of that sum, about $45 million. The projects also took advantage of the state's historic tax-credit program through the formation of private entities, which handled the tax credits for the nonprofit CenterStage Foundation — a move not uncommon in other parts of the country when buildings are involved. But that's where the similarities stop. A performing-arts consultant who was interviewed for this article questioned the structure of Richmond CenterStage, particularly that a bulk of details about its finances and operations lie not with the nonprofit CenterStage Foundation but are embedded in private entities that include Richmond Performing Arts Center LLLP, which served as lead on the historic renovations at CenterStage; Landmark Theater LLLP, which serves as lead on the historic renovations at the Landmark; and Richmond Performing Arts Center Inc., which serves as a general partner of RPAC LLLP. Adding another layer, SMG, a global entertainment and facilities-management company, actually runs and books Richmond CenterStage's venues through a contract with RPAC Inc. as opposed to the nonprofit foundation, which handles fundraising, marketing, promotions and educational programs. Contributors to CenterStage and taxpayers who want to see how their dollars are being used currently have only the foundation's tax filings as a window into the operations. But it shows just a small part of the picture. Neither RPAC nor SMG's records are open for public review, despite the city's payment of an annual $500,000 subsidy for operations. ‘Never Seen a Structure' Like This The lack of public openness at CenterStage, given the city's sizable contributions so far, befuddle Halsey North, chairman of North Group Inc., who has consulted with dozens of arts organizations over more than 40 years. "You build confidence through transparency," he says, adding, "I've never seen a structure that quite works like this, and I'm not sure what the advantages of it are." In contrast, the tax filings for the nonprofit foundation that oversees Cleveland's nine-theater complex, PlayhouseSquare Center, show the operation of all its venues, from soup to nuts — perhaps a sign of the organization's single-minded purpose. "Our mission is really to present and produce arts and entertainment for everyone," says Art Falco, president and CEO of PlayhouseSquare Foundation. The fact that RPAC operates away from public view when it's partly funded by tax dollars stirs the consternation of Joel D. Katz, the former executive director of the Carpenter Theatre who resigned in 2005 as vice president of the foundation in a power struggle. "At the end of the day, it's our money," he says, "and if we're subsidizing the programs there, I believe the public has the right to know what the true revenues and expenses are." Since September, when the magazine reported on CenterStage's progress after four years of operation, RPAC has been slightly more forthcoming with Richmond magazine about how its revenues affect the total balance sheet. "We don't operate in the red," says CenterStage spokesman Jay Smith. The nonprofit CenterStage Foundation's last tax filing on record, for 2011-12, shows a $1.33 million deficit. However, Smith notes, "[the foundation's tax form] only looks at the activity of that year and doesn't reflect the balance sheet" because RPAC is responsible for the lion's share of programming and revenue. For that same fiscal year, Smith says, RPAC took in $15.2 million in ticket revenue for all of its venues combined, presumably enough after expenses to more than cover the deficit. "An important point of the private entity was so that we could improve the public buildings," Smith says, adding that RPAC also manages the long-term maintenance of the buildings. A key reason for the formation of the LLLPs, Smith explains, was to help acquire tax credits for the renovation of two historic performance venues — the Landmark and Carpenter theaters. Here's how those credits work: Based on the amount of rehabilitation work done, the developer, in this case the LLLP, receives a percentage of that cost back in state and federal tax credits. Those credits are either passed through to partners or are syndicated (or sold) to other investors and corporations, at a discount, through a partner. (Typically, developers sell credits at about 75 percent of their face value. For example, if an investor contributes $75,000, he or she may end up with a $100,000 tax credit that can be used against his or her individual tax liabilities.) Forms that list who is eligible to claim the credits are filed with the Virginia Department of Taxation but excluded from the provisions of the Virginia Freedom of Information Act. Rehabilitation of the Carpenter Theatre alone cost $42.4 million, which resulted in $19.08 million in state and federal tax credits. The final tax credits for the Landmark Theater have not yet been calculated, but the estimated cost of rehabilitation is $60 million, Smith says. Although a private entity, Smith says, RPAC Inc. does not exist as a profit-making venture with shareholders. Its mission is to turn any profit back into the operations of CenterStage. "RPAC does not have an employee," he says, explaining that its actions and decisions are directed by its board, helmed by Thomas Farrell, the chairman, president and CEO of Dominion Resources. Our September story quotedFarrell as saying the board has not considered voluntarily opening the organization's books. He declined to speculate whether the public would interpret such an action favorably. Therein lies the crux of how CenterStage has come to be structured in a way that consultant Halsey North describes as "unusual." If Richmond's arts center does not bear the likeness of a typical performing arts organization, then which regions do, in fact, offer better examples of how the centers come to life with more public-spirited openness, especially when taxpayers' money is on the hook? The Cleveland Show On the southern side of Lake Erie in Cleveland, PlayhouseSquare Center has grown to become one of the largest performing-arts destinations outside of New York City, a collection of nine different theaters whose origins include a Loew's theater like Richmond's Carpenter Theatre. By the late 1980s, it was the fourth-largest performing arts center in the country. Today, it is No. 2, behind Lincoln Center. The center's history goes deep into the days of film industry mogul Marcus Loew, who developed an extensive chain of New York City theaters in the early 1900s. He established Cleveland's first Loew's movie houses with local developer Joseph Laronge and continued to acquire others. The district, with a dense collection of theaters, saw a boom and bust from the 1920s through the '60s, along the way earning the name PlayhouseSquare. Beginning in 1970, preservationists spurred a revival of the district's shuttered venues and formed a nonprofit in partnership with the Junior League of Cleveland. In 1973, the PlayhouseSquare Foundation was formed. Combined local efforts saved several dilapidated theaters from demolition. Music and performing arts started to take hold again in the district, and by the late 1970s, public-private partnerships raised $40 million to restore the district's old theaters. Billing itself as "the world's largest theater-restoration project," the foundation had collected five classic theaters by the late 1990s, and the district around them was targeted as a business improvement zone. PlayhouseSquare's beehive of venues today gets annual subsidies from local government — it received $2 million in the 2012-13 fiscal year. Through the years, construction and renovation projects were fueled by preservationist fervor and public-private efforts, including a cigarette tax, as well as various state and federal grants. Art Falco, president and CEO of the PlayhouseSquare Foundation, notes that the foundation's real estate services arm has used federal historic tax credits not on the theaters themselves, but on commercial real estate within the arts district. But to protect the district's viability, Falco says, the foundation also spun off a full-fledged real estate services division — also a nonprofit — to develop commercial real estate around the theaters and cement PlayhouseSquare as a destination. "The fact that we started this real estate services company was somewhat out of necessity. There were a couple of key properties that were essential to the district," Falco says. The nonprofit real estate company was able to qualify for federal historic tax credits for some of the projects. Other performing-arts centers are funded entirely by private parties, usually hinging on a major donor — that's the case in Kansas City, Mo., with the Kauffman Center for the Performing Arts, which cost $413 million to build, including the city's $47 million expense to build an adjacent parking garage, the only part of the project it owns and operates. The Kauffman Center runs as a nonprofit foundation, established and named for its key donor. Even though there is no veritable public commitment to the arts center itself, the details of Kauffman Center finances, like most nonprofits, are fully on display through its annual tax filings. This way, anyone considering a donation to the center can ascertain the management of the operation. Colleges and universities also help fund and operate centers that extend to a community at large, as with the San Luis Obispo Performing Arts Center at California State Polytechnic University, created in partnership with the city and a nonprofit foundation. This reflects what North says is the spirit of most, if not all, major performing arts centers: Aside from their economic value to a locality, they serve as the leading source of cultural enrichment for a community. Even renowned orchestral, ballet and opera companies may not draw enough attendance to be economically viable without public funding. "Most of those activities generally lose money," North says. "They're important for the cultural health of the community." ‘Part Blessing, Part Luck' in Durham One-hundred-fifty miles south of Richmond, in Durham, N.C., the city's official website touts the "runaway success" of its 5-year-old $47 million performing arts center about a mile east of Duke University. City-owned but managed and booked by contracted firms, the 2,800-seat Durham Performing Arts Center (DPAC) does not lend itself to a direct apples-to-apples comparison to Richmond's CenterStage — it was built from the ground up, shiny and new, on land that already belonged to the city of Durham. Side by side, though, the traits and trade secrets of each could tell a story, some might say, of what to do and what not to do. The Durham center is a big-show stage, more akin to the grander Landmark Theater than the Carpenter Theatre. And even though more than $33 million in public funds went into its construction, the DPAC doesn't shoulder the same mission of arts education and outreach that CenterStage does. Only eight months after the Durham Performing Arts Center opened, officials stood up, spread their wings and sang via news release that the venue's brisk business already had earned more than a $400,000 payback to the city. The news gave proof that the city's economic-development bet was on track. That windfall was four times what Durham officials expected, and along with other earmarked revenue from naming rights and hotel-motel taxes, it helped pay the city's first $2.5 million installment on the 28-year "mortgage" it took to build the center. The next year, DPAC tripled its payment back to the city. At this rate, says Reginald Johnson, Durham's director of community development, the center's success is piling reserves into the city's rainy-day fund to pay for maintenance and upgrades as the building ages. "It was part blessing, part luck," he says, as if a war has been won, "but it was also part strategy." Durham's center shows what happens when these partnerships are more clearly defined, when they are developed with community-oversight committees (a show of good faith and inclusion), and neither the local government nor a corporate partner takes on more than its fair share of risk. Things, for the most part, seem to work out. Richmond's CenterStage does deliver major acts like the touring musical production Rock of Ages and comedian Bill Cosby. But it also presents the sometimes less-popular offerings of resident companies, including the Richmond Ballet, the Virginia Opera and the Richmond Symphony — all worthy of acclaim, though not always sell-out material. Durham's center is mostly built for big-ticket shows: B.B. King and John Legend, Louis C.K. and Wanda Sykes, repeat visits from Harry Connick Jr. or an evening with The Book of Mormon. It hosts a week of the annual American Dance Festival produced by Duke University and rents the venue to local groups (although the arts groups have complained that the $1-per-seat rate, a standard at other area venues, is prohibitive in such a large theater). The venue's starkest contrast with downtown Richmond's center, however, is not even the financial success that comes from its mainstream events, but how its planning has managed to avoid any major controversy along the way. CenterStage was conceived in 2000, like many performing-arts centers, to revitalize a downtown district that had withered over decades as an urban population base drained to the suburbs. But even as the grand proposals emerged to replace blighted properties with a thriving arts district, so did the critics, including a mayor whose antagonism toward the proposed project often seemed more madness than method. Durham's project didn't make it through the gauntlet without at least a few tussles. Talks with its initial venue-management prospect, Clear Channel, collapsed, and its original developer left the bargaining table early on. Local arts watchers worried that the big center would stifle other venues. The public-private agreements that shaped DPAC required the contractors to guarantee a certain level of performance or partially indemnify the city as a condition of keeping the job. The Swedish construction firm Skanska USA Building that was chosen to build Durham's center was given a no-bid contract with the city — it was an act of necessity on the city's part to take advantage of tax revenue that was earmarked for the project and would sunset soon. When Durham chose Professional Facilities Management of Rhode Island and Nederlander of New York City to handle the operations and booking of its venue, the contract required them to average at least 100 nights of bookings over the first three seasons. Of course, it's easy to share the news when it's good, but DPAC discloses its financial numbers to the public. The venue's two contractors present year-end figures to a five-member community oversight board appointed by the city. But PFM and Nederlander also share their balance sheets, attendance numbers and other financial statements with the Durham City Council annually — all of which eventually ends up published on the city's website. The city of Richmond's oversight of CenterStage seems to pale by comparison. Two City Council members contacted for this story claimed a lack of familiarity with the basic finances of the operation. Higher up the chain, Tammy Hawley, spokeswoman for Mayor Dwight C. Jones, explained that Byron Marshall, the city's chief administrative officer, routinely reviews records related to CenterStage as needed. In 2008, when CenterStage was a little more than a year away from opening its doors, then-mayoral candidate Jones called RPAC's Freedom of Information restriction "over the top" and said there needs to be "accountability in terms of the city's commitment [to CenterStage]." Asked twice if the mayor could or would ever consider amending the city's comprehensive agreement with RPAC and the CenterStage Foundation to make the organizations' balance sheets open for public review, Hawley repeated by email the same general statement: "RPAC is a private entity and only a small percentage of its operation budget is provided by the city of Richmond. Public access to RPAC financials has been limited primarily due to the fact that RPAC is a private entity. City officials have full access to financial statements and records and the records are reviewed routinely." Given the fact that RPAC, aka CenterStage, is capable of raking in at least $15.2 million in ticket sales, as it did during its 2011-2012 season, a $500,000 city subsidy arguably rates as only a small piece of the money RPAC has on hand to keep the lights on. But taxpayers have paid more than one-third of the tab to build and renovate these properties, and, according to North, are entitled to expect something in return, whether it's transparency, more outreach or community programming. "The more public money, the more public service you should look for," he says. A public that feels invested, North says, is more likely to buy in even more. "I would encourage them to think about being transparent so the community has the confidence to make the donations." Editor-in-Chief Susan Winiecki contributed to this story.
