Just like every other public facility, DPAC is not profitable!!!!!!!
by Richard Ford
September 8, 2011
It looked like great news. DPAC is not a money pit! It is actually making money. There it was in the Herald Sun and the N&O, and a press release from City Hall: For the fiscal year ending 6/30/11, DPAC had a profit of $2.5M and gave the City of Durham $1M of that. Mayor Bell was similarly impressed: “While the venue continues to be profitable, what it means for Durham during these tough economic times goes without saying.”
However, it was Durham Performing Arts Center, LLC that made a $2.5M profit. That’s the Delaware Limited Liability Company the PFM/Nederlander Organization owns and through which they run DPAC under a 5-year contract. So it was the private operator who made a net income of $2.5M. The “giving” of $1M to the City is a mandated payment made in accordance with the contract between DPAC, LLC and Durham. The contract provision requires that the City receive 40% of any net profit.
Then the Triangle Business Journal tells me that both figures—net profit and City share–were down 13% from last year.
But wait, wait there’s more, because when I looked at the unaudited financial statement provided to me by the City, I saw no mention of a mortgage, debt service or rent. The privately owned LLC doesn’t pay to use the building.
So who pays for the building? You and I and every other city taxpayer help pay for it. The City footed the bill for building DPAC. We get no rent, and we pay the debt service.
The city borrowed $33.7M to build DPAC. These were certificates of participation. This means we taxpayers did not get to vote for them: our City Council obligated us without our approval. Servicing our DPAC debt will require 28 years of annual payments of nearly $2.5M ($67.8M total.)
Look at the city’s DPAC figures from the FY that ended 6/30/11. The city is also paying $275K for operating costs and $344K to transfer to the mandatory reserve for improvements and maintenance. The total City subsidy for DPAC is $3.1M for FY 10-11.
How does the City pay for the $3.1M annual subsidy? First there is the revenue directly attributable to DPAC. The 40% of the LLC profit will bring in $1M. Other revenues, such as naming rights and surcharges, will bring in $721K.
General revenues only tangentially connected with DPAC are also used. 1% of the County Hotel Occupancy tax is dedicated to DPAC, capped at $1.4M. That looks to come in a bit low this year, at $1.2M for the just past fiscal year. The City will transfer $206K from the Downtown Revitalization Fund.
Finally the City was able to increase the capital reserve by $344k, up from $200K last year.
What does this mean? That in a banner year for DPAC, the city used $1.4M in non-DPAC generated revenue ($1.2M. Hotel Occupancy Tax and $206K from Downtown Fund).
These are not far off from estimated offered in 2007. The facility fees were estimated to generate $1M, so they have fallen short by $288K, mainly due to unsold naming rights. The Hotel tax is short of original estimates by $177K this year. The Downtown Fund was supposed to contribute $100K, which has been now been doubled to $206K.
Do I not love that DPAC has put Durham on the cultural map? Of course I do! Do I not hope that Broadway to Baseball will be a smash hit and a home run? Of course I do! Do I hope that DPAC generates the local spending its backers claim? Of course I do!
But we are in an era of limited government resources. We need to understand the economics of the choices we have made and to watch that the real consequences are not obfuscated by happy talk.
At the end of the day, DPAC is subsidized by City funds. The Ballpark is as well. And if the City takes over the Hillandale Golf Course, the city will subsidize it as well.
Let’s just be sure we make these spending decisions with our eyes open, and that when we have shortfalls in other areas, we remember how we chose to spend our public funds.