Wednesday, September 16, 2009

Hancher - Part III

September 16, 2009, 6:35 a.m.

Some Suggestions for Thinking About the Location of
the University of Iowa's New Performance Venue
Part III

(brought to you by FromDC2Iowa.blogspot.com*)
[Entries in Hancher Series:

Nicholas Johnson, "Hancher - Part I," September 14, 2009 (Downtown).

Nicholas Johnson, "Hancher - Part II,"
September 15, 2009 (Natural Settings).

Nicholas Johnson, "Hancher - Part III," September 16, 2009 (The Costs).

Nicholas Johnson, "Hancher - Part IV," September 17, 2009 (UI's Mission and Mobility).]
Iowa City's residents, downtown merchants, University of Iowa officials -- and ultimately the Board of Regents -- have a decision, or series of decisions, to think through regarding the replacement of "Hancher," the city's largest and most elegant entertainment venue.

Monday's blog entry focused on the nature of Iowa City's downtown. Yesterday we discussed the contribution of natural settings to entertainment venues.

Today, Wednesday, we examine the economic costs of this project, including a comparison between the costs of the two "finalists" as possible locations.

This may prove to be a five-day series. The local paper, the Iowa City Press-Citizen, is trying to help with its three-day, three-part series, "The Hancher Decision." Jim Lewers, "Hancher Series Begins Today," Iowa City Press-Citizen, September 12, 2009. The data and various local opinions reflected in its series are linked throughout these blog entries and listed chronologically at the bottom of each day's blog entry.

Future subjects may be the rationale for public universities as part of the entertainment industry (football and Broadway road shows), what is "Hancher" (a building or a booking agent?), the role of greenbelts in flood control, the arguments of politically powerful actual and potential Hancher neighbors (downtown restaurants, and Manville Heights residents), the distances and logistics of getting around our little toy town, the University of Iowa's commitment to the arts, and the desirability/necessity of keeping the music buildings and Hancher together -- along with anything else that occurs to me throughout the week.

To the extent this exercise in figuring out my own position on these significant local issues is helpful to your own efforts to think them through you're welcome to it.

The Cost of Locating and Reconstructing Hancher
The Press-Citizen has run three stories involving the costs of this project which, for the most part, contain identical numbers.

Here are the issues I see.

Who's paying? Anyway you slice it, $300 million or more is one whale of a lot of money.

From my perspective, FEMA money is not "free money." The FEMA money, the State of Iowa money -- and the money from whatever other pockets we're picking -- is money that the nation's and state's taxpayers are -- or our great grandchildren will be -- paying.

It's an amount roughly equivalent to the first estimates for the ill-fated indoor rain forest, ultimately named "Earthpark" -- which was also going to rely, in large part, on taxpayers' money.

Cash Flow Construction cost was not the primary problem for Earthpark (although the promoters had not been able to raise a dime in a decade for that purpose), it was cash flow, or revenue. Once built would it generate enough in tourist dollars (or research funds; it's mission and function were usually vague and shifting) to cover its operating costs?

I believe Hancher's revenues are down about 75%. For an entertainment venue with no building that's actually more cause for congratulations than caution. But in this economy, most entertainment venues that didn't lose buildings are also suffering declining cash flow.

Although most economists assume a recovery is coming at some point, fewer think we will return to the heady economic and champaigne bubbles that created the seemingly unending discretionary income of the past couple decades. Moreover, the recovery has also been described as a "jobless recovery" -- which does not bode well for an economy 70% driven by consumer spending. There is also concern that with Wall Street's continuing lobbying, campaign contributions, executives' bonuses, and drive to make money out of nothing, the odds of our getting meaningful reforms -- without which there's nothing to keep us from going through it all again -- are much less than they would have been a year ago.

But put all that aside. Assume unemployment reverts to the 4-5% level, inflation is kept under control, the Iowa Legislature's support of the University and Iowans' incomes are back up to what they were and more, Americans abandon their current compulsion to save their money, and to quote the Depression Era Democratic Party song, "Happy Days Are Here Again."

As with Earthpark, I have not seen the numbers regarding the projected costs and revenues of operating this new Hancher, wherever it might be located -- whether during the best of economic times or during a seemingly unending recession.

When Coral Ridge Mall was created its $100 million in sales, it turned out, were largely mirrored in the near $100 million loss of sales in the surrounding counties. When another gambling casino is added to Iowa's rather significant collection, those nearby often see a decline in their take.

Do we know what other entertainment venues are planned in Eastern Iowa or Western Illinois? What may be the impact of the Coralville auditorium on a newly built Hancher?

Have we thought about what may be coming to compete with, and severely impact the revenue, for venue entertainment -- what I call an industry's unexpected "broadside blows"? From today's news alone: Clearly the addition of Harry Potter to Orlando is going to have an impact on that town. Blockbuster is closing stores because our DVDs are now coming to us (quite efficiently, thank you) from the most unlikely delivery service: the U.S. Postal Service! Netflix is saving us a trip to the mall. And if we're going anyway we can get them from the grocery store's "Red Box" vending machine. Are there equivalent potential competitors for the entertainment venue industry on the horizon -- similar to what VCRs and then DVDs did to the movie theaters, and subsequently video games did to the DVD business? (One game, Grand Theft Auto IV, sold 6 million copies globally, and took in $500 million, the first week it was on the market.)

Is there anywhere something resembling a "business plan" for the new Hancher; a reasonable set of projections of expenditures and revenues? Presumably its past budgets and books are a matter of public record. Is any of this material available on the Web?

None of this discussion is to say that a new Hancher will be an economic disaster, forced to ask for taxpayer subsidies or cut back on shows and amenities. My hunch is that it will be able to more than pay for itself (so long as it doesn't have to pay any of the costs of this $300 million project that makes it possible). But it's only a hunch. My point is simply that I haven't read, heard or seen any budgets or discussion of these issues.

Property Tax Payers Normally, property taxes are not affected by University projects -- only projects undertaken by Johnson County, the City of Iowa City, or the Iowa City Community School District. But in this case, if Hancher is located downtown, the cost will be paid for, in part, by Iowa City's property tax payers.

How can that be?

As the Press-Citizen reports, "Iowa City generated about $389,000 in taxes from those properties and land in 2008" -- referring to the two city blocks and their businesses the University would have to buy to squeeze Hancher in downtown. Once the University -- known to local taxing authorities as "the State" -- owns the property that money is lost to local tax collectors, because the State does not pay property taxes to its cities..

Note that not only does this $389,000 potential shortfall have to be made up, it has to be made up by local property taxpayers every year for the rest of their lives. This is another not-so-hidden cost of putting Hancher downtown; a cost to be paid by property owners who are already burdened with a multiple of what their taxes might otherwise be because of the amount of property in Iowa City that has been removed from the tax roles because of State ownership -- or because generous local governments have awarded "TIFs" (tax incremental financing) to the lucky, favored developers who get taxpayers' money transferred directly to the bottom line of their for-profit corporations.

Why Hancher? Like seemingly everyone else in these parts my initial instinct, following the realization that Hancher had for all practical purposes been destroyed by the 2008 flood was to simply assume that it would, of course, be rebuilt. My suspicion is that, following all the arguments the Libertarians and tax cutters could muster, I'd still be in favor of rebuilding it.

But I haven't heard those arguments, nor read about them in the Press-Citizen's coverage, and think they are serious enough that they at least deserve to be heard and rejected rather than never heard at all. Hancher was built in 1972. It had a successful 36-year run -- not bad in the theater biz.

"Hancher" (the program, not the building) is now booking performances under the Hancher name into other venues. Coralville's about to build its own auditorium. Does it automatically follow, without examination, that the University should try to make this beautiful Hancher omelet rise twice, rather than set off on some new adventure in the arts?

Could the University team up with Coralville to build a larger facility that both could use? Are there any private, for-profit potential investors who would be interested in building a facility; one for which "Hancher" could book performances -- as it is now doing with venues elsewhere?

Even if this much public money is going to be spent, what is the opportunity cost of spending it on this project (understanding, of course, that some of the money would not be available unless it was spent on a new "Hancher")? And "cost," of course, involves more than UI Foundation funds (and funds from other sources) being diverted to Hancher from what donors might otherwise have supported. There is also the investment of University administrators' and staff members' time in this big undertaking.

What Are the Total Costs? The Press-Citizen's stories, below, repeat the $276 million figure. One of them details the components:

"• $180 million to replace the facility with updates to meet today's building standards.

• $44 million for expansion and updates for program needs plus a new gallery.

• $22 million for environmentally friendly construction, which UI officials said will be recouped over time in utility savings.

• $30 million for a new parking structure."

But another story notes that if the building is located downtown,

"UI would have to purchase six private properties, including two banks, an apartment complex, a condo-retail complex, a gas station and an auto repair shop. The property and land value for that is about $13.2 million . . . [and that] doesn't account for demolition costs. Plus, UI would have to tear down and find a new home for its Engineering Research Facility. . . ."

Putting aside the disruptive administrative hassle of acquiring all those properties, my guess is that the $13.2 million to buy all of them (the amount said to be their "assessed value") is an unrealistic basis for calculating what the actual purchase price will be. Ultimately, of course, the Regents can go with their own nuclear option (eminent domain) if the asking prices are too high, but they've usually been reluctant to use it.

And I have no notion of what it would cost to find or buy the land for, and build and equip, a new "Engineering Research Facility."

How much of all this is to be funded by FEMA? The story continues, "FEMA will cover 90 percent of eligible costs -- about $160 million."

$96 Million of "Extras" In other words, we could get a new Hancher for $20 million of Iowans' money (plus the $160 from FEMA). That being the case, just how essential are those updates and expansion budgeted at $44 million, the $30 million "parking structure," and the extra $22 million to be "environmentally friendly." Even assuming no cost overruns, $96 million in savings is nothing to sneeze at.

Subtract FEMA's $160 million from the $276 million, add the cost of buying two fully-built city blocks of downtown Iowa City, buying land and building a new Engineering Research Facility, demolishing the multi-million-dollar buildings just purchased, factor in the inevitable cost overruns for these projects and a parking garage and, as Senator Everett Dirksen is credited with saying, "You're talking real money."

And speaking of a $30 million "parking structure," is that intended to be a rather broad and bold hint that someone has already decided Hancher's going downtown? Or does the phrase "parking structure" refer to parking lots as well as garages, and is a phrase meant to include the cost of an additional parking garage downtown or the added expense of an open parking lot near Hancher's present location?

None of this is to say that building on up the hill from where Hancher is now would be cost free, but intuitively it would seem to be significantly cheaper. The University already owns the land. I'm assuming parking lots are much cheaper than parking garages. There would be no need to buy two city blocks worth of commercial properties -- and then pay to demolish them, and no need to demolish the old, and then buy land and construct the new, "Engineering Research Facility."

Nor is this to say that money is the only consideration. If a reasonable comparison of the advantages of a river front location vs. a downtown location favors the downtown location one might well decide the added costs are worth it. It's just that, at this point in my thinking, I don't see the comparative advantages tipping in favor of downtown (with or without the additional costs of downtown).

Here is the data from the Press-Citizen stories:
At 418,881 gross-square feet and costing $276 million, the building would be one of the largest and priciest projects the area has ever seen. . . .

UI would have to purchase six private properties, including two banks, an apartment complex, a condo-retail complex, a gas station and an auto repair shop. The property and land value for that is about $13.2 million, according to Iowa City Assessor's Office records. That doesn't account for demolition costs.

Plus, UI would have to tear down and find a new home for its Engineering Research Facility. . . .

The Federal Emergency Management Agency has designated the Hancher-Voxman-Clapp project as eligible to be rebuilt in a new location with federal support. The damages exceeded a 50 percent threshold of the cost of building a new facility, which made it eligible.

FEMA will cover 90 percent of eligible costs -- about $160 million. UI is planning to build the facility about one-third larger than the current structure, add galleries and use an environmentally friendly design, which are not expected to be covered by FEMA, leaving UI to come up with $114 million. . . .

For Iowa City, it would be a sizable drop in tax revenue. Iowa City generated about $389,000 in taxes from those properties and land in 2008, according to the Assessor's Office.
Brian Morelli and Josh O'Leary, "Is Moving Hancher Downtown a Game Changer?" Iowa City Press-Citizen, September 12, 2009, p. A1.

At this point, some of the critical issues -- cost, available space, parking, protection from flooding and timetable -- are fairly similar for both sites, UI officials said. For example:

• Cost is $276 million.

• It would require 418,881 gross square feet, or about two city blocks of space.

• UI would need to find 1,300 parking spaces, which would require additions at both sites.

• Both sites are at least 2 feet above the 500-year floodplain.

• Once a site is selected, it is likely to take five years to complete.

The Federal Emergency Management Agency declared Hancher-Voxman-Clapp eligible for relocation with the agency's support. UI is expecting FEMA to kick in about $162 million toward the rebuilding project.
Brian Morelli and Deanna Howard, "As Venue's Losses Mount, Public Split; One site's weaknesses are the other's strengths, official says," Iowa City Press-Citizen, September 14, 2009.

UI officials project the cost of a new Hancher-Voxman Music Building-Clapp Recital Hall complex at $276 million.

FEMA has pledged to cover 90 percent of eligible costs, which at this point would not include parking, expansion or environmental goals. This leaves UI to cover $114 million.

The costs breaks down to:

• $180 million to replace the facility with updates to meet today's building standards.

• $44 million for expansion and updates for program needs plus a new gallery.

• $22 million for environmentally friendly construction, which UI officials said will be recouped over time in utility savings.

• $30 million for a new parking structure.

UI officials haven't detailed financing for a new Hancher-Voxman-Clapp complex at this point. However, they have identified broadly how to pay for the estimated $743 million in campus-wide recovery from the flood.
Brian Morelli, "Culver hopeful UI will get more federal funds; FEMA head to tour campus' flood sites in next two months," Iowa City Press-Citizen, September 14, 2009.

The Press-Citizen's Series

[See also the University of Iowa Facilities Management Web page regarding its July 9, 2009, presentation to the community about these issues. It includes links to a streaming video of the evening, the Power Point slides used on that occasion, and the Flood Mitigation Task Force Recommendations. "Facilities Managment/Projects." My own evaluation of that evening is found in Nicholas Johnson, "Hancher Relocation Process and Site; University Offers Useful Model for Major Decisions," July 10, 2009.]

Jim Lewers, "Hancher Series Begins Today," Iowa City Press-Citizen, September 12, 2009.

Editorial, "Choose Between Two Good Options for Hancher," Iowa City Press-Citizen, September 12, 2009.

Chuck Swanson, "Either Site Will Work for Hancher," Iowa City Press-Citizen, September 12, 2009.

Wallace Chappell, "Time to Divorce Hancher and the River," Iowa City Press-Citizen, September 12, 2009.

Bob Hibbs, "Performance Spaces on the UI Campus," Iowa City Press-Citizen, September 12, 2009.

Brian Morelli and Josh O'Leary, "What To Do About Hancher Auditorium," Iowa City Press-Citizen, September 12, 2009.

Brian Morelli and Josh O'Leary, "Is Moving Hancher Downtown a Game Changer?" Iowa City Press-Citizen, September 12, 2009.

Brian Morelli, "Regents to Have Final Say in Hancher's Location," Iowa City Press-Citizen, September 12, 2009.

"UI Flood Recovery Mostly Covered By FEMA Money," Iowa City Press-Citizen, September 12, 2009.

Brian Morelli, "UI, Hancher May Get More FEMA Money," Iowa City Press-Citizen, September 12, 2009.

Brian Morelli, "Officials Didn't See Flooding to Be Potential Problem," Iowa City Press-Citizen, September 12, 2009.

Deanna Howard, "A man for the arts; Virgil Hancher envisioned an arts campus on the river," Iowa City Press-Citizen, September 12, 2009.

Rob Daniel, "New Stores Help Fill Coralridge Mall," Iowa City Press-Citizen, September 12, 2009.

September 13

Josh O'Leary and Brian Morelli, "UI Weighs Options for Hancher Flooded Site," Iowa City Press-Citizen, September 13, 2009.

Josh O'Leary, "Yarrow Ready for Hancher Rebuilding," Iowa City Press-Citizen, September 13, 2009.

Josh O'Leary, "Proximity Key to Hancher's Neighbors," Iowa City Press-Citizen, September 13, 2009.

"Learn More About Coralville Arts Center," Iowa City Press-Citizen, September 13, 2009 ("This 500-seat community venue . . . will be available for use beginning in the spring of 2011 . . . by community groups for recitals, concerts, lectures, theater and other performances").

September 14

Bruce Wheaton, "The 'H,' 'V' and 'C' in 'HVC,'" Iowa City Press-Citizen, September 14, 2009.

Marc Moen, "Benefits of Urban Auditoriums," Iowa City Press-Citizen, September 14, 2009 (with link to Iowa Department of Cultural Affairs, "The Benefits and Qualities of Cultural Districts") .

Brian Morelli and Deanna Howard, "As Venue's Revenue Losses Mount, Public Split; One Site's Weaknesses Are the Other's Strengths, Official Says," Iowa City Press-Citizen, September 14, 2009.

Brian Morelli, "Who Will Make Site Selection?" Iowa City Press-Citizen, September 14, 2009.

"Culver Hopeful UI Will Get more Federal Funds; FEMA Head to Tour Campus' Flood Sites in Next Two Months," Iowa City Press-Citizen, September 14, 2009.
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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