Music Center’s Sustainability and Future

Updated: Apr 25, 2020

As a result of the Covid-19 pandemic, the Brown County Music Center (BCMC) can’t make their mortgage payments. On April 15, 2020, the county council approved a loan for $150,000 to pay the next three months interest payments.

The $150K was borrowed from the county motor vehicle highway (MVH) fund which has to be reimbursed by the end of December.   A six-month extension can be granted.

Economic Assessment – IndyStar Pandemic could lead to deficits in millions 20200426

  • The city of Indianapolis and its tourism industry are bracing for budget shortfalls stemming from the coronavirus pandemic, an unknown economic impact that has already prompted a multimillion dollar budget cut for the city’s marketing agency and hiring freezes elsewhere.
  • Convention and visitor bureaus throughout the state are going to have to rethink their mission, Hicks said.  “I think this is an existential moment for the tourism industry and the way it’s supported in the state,” he said, noting a potential need to end marketing efforts in smaller counties and spend the money in more efficient ways.

Questions

  • Does the county have a legal liability to pay the mortgage? No. Per councilman Darren Byrd who is also a member of the Maple Leaf Management Committee, “This (150K) was an emergency loan to make the interest-only payments. It wasn’t done because of an obligation; just to mitigate a disaster. As with any mortgage, default could lead to eventual foreclosure.
  • How will the 150K loan be paid back, when, and by whom?
  • Are county taxpayers legally obligated to pay the mortgage?
    • No. Per councilman Darren Byrd who is also a member of the Maple Leaf Management Committee.
  • Would a default negatively impact the county bond rating?
    • Yes. Per councilman Darren Byrd who is also a member of the Maple Leaf Management Committee, a “foreclosure could have a negative rating effect.”
  • Why would a default affect the credit rating?  The county only loses a marketing budget for tourism which is a relatively small contributor to the county tax base.
  • What is the impact of a negative bond ranting?  Would this lead to higher interest rates being paid for loans and possibly make it difficult to even borrow money?  
  • If there was a downside to a default, was this fact and the details communicated by the attorney (s) to county government officials?
  • If taxpayers are not currently liable for paying the debt as currently structured in contracts, can this be changed to obligate the taxpayers?
  • Will there be a recurring need to loan money from the MVH fund and then pay it back with other tax money?  Is this a work-around to claim that income and property tax is not being used to pay the mortgage or any other operating expenses the venue may need?
  • If a default on the mortgage, what happens?  Would the venue appraise – at or over the amount borrowed?  Is it correct that all the revenue from the innkeeper’s tax would be transferred to the bank until the debt is settled?
  • The Convention Visitors Bureau (CVB) relies on revenue from the innkeeper’s tax for marketing and promotion of tourism – that includes funding of the Visitor Center.  Will they also be requesting a subsidy from the county taxpayers?

What Is a Credit Rating?  A credit rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money—an individual, corporation, state or provincial authority, or sovereign government.

What is a Bond Rating .  A bond rating is a way to measure the creditworthiness of a bond, which corresponds to the cost of borrowing for an issuer. These ratings typically assign a letter grade to bonds that indicates their credit quality

Health and Safety.  Without a vaccine, treatment, immunity, what will be the risk from tourists to county residents?  Brown County has one of the oldest populations in the state.

Promise to County Taxpayers

At the time this project was approved by the county council, Council President Dave Critser identified the worst-case scenario as the economy crashing and “told the audience twice that income and property taxes would not be used to pay for the venue.”

  • Brown County Democrat, Council approves pledging innkeepers tax to fund Maple Leaf venue by By Suzannah Couch – Nov 28, 2017.

    • Resident Tim Clark asked if the resolution could be changed to put county taxpayers on the hook if the project runs into “difficulties or the strategy changes.” … Critser said that would require a new resolution to be passed, and county commissioner Diana Biddle said that the county “can’t do a bait-and-switch that way.” …  “They can’t choose to add the property taxpayers later,” Matthas said. “They would have had to get it approved now, and they didn’t.”
  • Brown County Democrat.  Steps taken to fund Maple Leaf venue By Suzannah Couch – Nov 17, 2017 – Quotes:
    • “With the loan, the bank requires only the innkeepers tax and the mortgage as collateral (Herring)
    • County commissioner Diana Biddle asked attorney Pitman if Maple Leaf debt could ever be put on the county taxpayer in the form property or income tax
      • Pitman said the debt would not be put on the county taxpayer; it’s on the innkeepers tax. Pitman said the loan documents will limit the financial liability only to Maple Leaf revenue and the innkeepers tax.  
    •  Commissioner Dave Anderson said there are no liabilities to county taxpayers under the deal. “This is a good thing for Brown County. I can see no exposure to liability for our taxpayers, and that’s a biggie for me,” he said.

The innkeeper’s tax is collateral for the loan.  The innkeeper’s tax, by statute, is a county asset and is controlled by the county council that would be surrendering this asset. On default, the bank then takes control of the revenue stream provided by the innkeeper’s tax.

  • If the county directly opted to borrow money via a bond for this venue (as opposed to using the revenue from the innkeeper’s tax as collateral), taxpayers would have had the option for a remonstrance. The Redevelopment Commission (RDC) was the lead with this option and was doing the analysis and planning for the public meetings. The RDC was cut out of the process when it was determined that the innkeeper’s tax could be used as collateral.

Background Info

Summary of the project  GUEST OPINION: Time will tell what music center’s impact will be by Tim Clark

Project History and Timeline  BCMC: Brown County Music Center (Maple Leaf): For the Record By Tim Clark

Summary of issues impacting the decision-making process

Leverage.  The bank does not want the building and it may be difficult to dispose of the venue with the uncertainties in the market. In addition to the recent 90 days adjustments in payments (interest only), what additional options is the Bank willing to consider?

What’s the new norm?

  • Best Case. The pandemic is temporary and things return to normal. County funding helps bridge the gap.   How much should the county fund and for how long? Will the taxpayers be reimbursed?
  • The situation does not return to normal. How long do county taxpayers subsidize the venue? What additional funding would be needed to support the venue? WIll the county also be asked to fund marketing for tourism?

Fairness and Equity.  Is a subsidy for this venue and tourism industry fair?  Most county businesses and most if not all county taxpayers are financially impacted by the pandemic.

Cost-Benefit.   The justification for the subsidy (150K) per Commissioner Biddle: “…the music center is part of the foundation for the county’s economic recovery so it’s important for the county to step in and help now.

  • Tourism – $42.7 Million in gross revenue, 543 jobs, avg salary of 19K. (2017 Study – Rockport Analytics)
  • County residents – Adjusted Gross Income in 2018 – $408 million, reported on 7,000 tax returns. (About 7.400 residents in the labor force with over half commuting outside the county for work. (StatsIndiana).
  • County funded by income and property tax. The “State” is primarily funded by “Sales Tax” and Income tax. Thus the incentive for an innkeepers tax to promote tourism.

Patrons of the Arts.  Can money be raised from supporters of this venue and other benefactors?

Financials.  What is the financial condition of the venue? What financial information has been made available? Income Statement, Balance Sheet, Profit and Loss statement. Accounts Payable and Receivable reports? Cash flow and break-even analysis?

Community Support. What is the community support for a bailout?  What is the risk of protests and boycotts by county taxpayers of an industry that is a relatively small contributor to the overall “county” economy?  Will the issue create animosity against tourism?

Political Change.  Will the issue results in a demand for political change?  The Republican party has a monopoly on political power and were vocal advocates for this Music Venue.  All three commissions and 6/7 council members that voted for this project are Republican.

Covid-19 Impacts.  Uncertainty is expected to remain until there are effective treatments, a vaccine, wide-scale testing, and herd immunity.

  • Impacts on Large 2,000 seat venues? – TBD
  • Brown County has one of the oldest populations in Indiana.  Three gas stations, one Pharmacy, and one grocery store. No hospitals and no 24×7 medical clinic.  What will be the risks posed from tourists to the county?

Economic Outlook:  Depression, recession, quick recovery ….?

County Finances and Tax Increases.  What will be the drop in income and property tax? How much will the county be able to borrow? How much can the county increase property and income taxes? What expenses can be cut?

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