Town willing to look at bridge financing alternatives
By Mark Reaman
The Crested Butte Center for the Arts board hopes to break ground on its proposed expansion this coming spring and is now looking at a phased project that would be completed as donation pledges are obtained and secured.
The $15 million project is relying heavily on multi-year pledges and the Center board has approached the Crested Butte Town Council about working together to find ways to alleviate cash flow issues that could present problems with a quick construction project.
The council is willing to have the town staff investigate different financing options that would help bridge the cash-flow gaps.
Center for the Arts board president Ed Schmidt gave a presentation to the council on January 17 and said the Center has received pledges and commitments sufficient to cover the commencement of the so-called $9.5 million “Phase 1” of the $15 million project. Phase 1 would cover the construction of the proposed new theater building but would not cover renovation of the existing facility (Phase 2), the outdoor stage and connected site work (Phase 3) or the budgeted $1.5 million operating budget.
Schmidt made it clear the Center was not asking the town to further fund the expansion campaign beyond what it has committed, but since the town owns the land and building, Schmidt said the board wanted to work with the council to “look for collaborative solutions” to project challenges.
If the Phase 1 part of the expansion begins this spring—which Schmidt quipped could end up being in August due to the copious amount of snow this winter—there could be a $500,000 cash flow gap at the end of 2017, given projected costs and pledge payment timelines.
A larger gap could come in the summer of 2018 with an anticipated $2.5 million temporary shortfall and then another $800,000 gap in 2019. Schmidt was confident the pledges to cover the gaps were solid but because of tax and practical donation situations, the gaps could cause cash-flow issues.
“Our pledges right now total just over $9.5 million,” Schmidt told the council during the work session. “We are ready to break ground this spring and have a ribbon cutting in 2018. We would not begin Phase 2, which is the renovation to the current building [estimated to cost $2.5 million], until Phase 1 is completed and we have raised the money for Phase 2.”
Schmidt and Troy Bemberg, vice president of UMB Bank, told the council there were three normal ways to address cash flow mitigation.
The first would be to slow the project down so that pledged cash is in hand before construction costs were incurred. They estimated this approach would add at least 18 months to the current project schedule.
The second way would be to incentivize donors to pay sooner and broaden the pledge base.
The third solution would be to pursue some gap or interim financing that would bridge the projected pledge shortfall.
“If we slow construction down, we lose some scales of economy that keep costs down. We also have inflation and potential cost increase issues,” said Schmidt.
UMB’s Bemberg said obtaining some bridge financing could be expensive, with bond attorneys and the long public process. He said the town could consider advancing the money itself with a repayment plan in place. “A direct funding arrangement with the town could make the most sense from a cost and logistics perspective. Right now we are just looking at very high-level ideas,” he said. “There would be a lot of details to consider with every option.”
“Elongating the project would certainly impact the park area longer and increase management costs and have the pressures of inflation,” said construction project manager Crockett Farnell of Black Dragon, LLC.
“The solution needs a lot more thought and we need to talk with the town staff about the various options,” agreed Schmidt. “All we are asking of the council is to investigate all the options further. We would like to meet with the town staff and prepare a finding or recommendation to the council at the next meeting.”
“We certainly need some more homework on the options,” said councilwoman Laura Mitchell.
“The council obviously greatly values the Center for the Arts but we are also very hesitant to bet the farm on this,” said mayor Glenn Michel. “I am comfortable with you talking to the staff about options and coming back to educate us.”
“The worst case scenario is getting three-quarters of a building built and not completing it,” said councilman Jim Schmidt. “But I too am interested in hearing more about the options.”
“We need enough information with all the options so the council can judge the appetite of risk in the worst case scenarios,” concluded councilman Chris Ladoulis.
The Center and town staff representatives will meet over the next couple of weeks and prepare a report for the council for the February 6 meeting.