Wheeler fund getting fat
September 15, 2007
ASPEN ” Real estate has been good to the Wheeler Opera House.
The fund that sustains an endowment for the Wheeler Opera House’s continued operation is expected to be $30 million more than what was originally projected.
The Wheeler’s portion of Real Estate Transfer Tax, a half cent, already has generated more than $20 million since 2002, when Aspen residents voted to create an endowment for the facility. That tax revenue source will expire in 2018.
With the phenomenal growth in the real estate industry during the last several years, city officials have realized that their original revenue projections were far lower than what reality has shown them.
Over multiple years, the RETT has grown an average of 20 percent. Officials conservatively estimated that growth to be between 12 and 15 percent.
“The original estimates were $40 million by 2018,” said City Finance Director Paul Menter. “Now we’re tracking that we’ll have $70 million by 2018.”
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The conservative projections are reflective of a volatile market, he added. When the dedicated funds were passed, the real estate industry was flat. But never has it lost money for City Hall.
“It’s going up and down dramatically every year,” Menter said. “It has never shown a multiyear decline.”
However, real estate transfer tax revenue continues to decline dramatically this year. The violate real estate market is showing signs of stagnating, especially with fewer fractional ownership unit sales, according to finance officials.
In 2003, the city put $4.5 million of seed money to start the endowment from a $5 million fund balance ” the Wheeler has been funded by the half-cent tax since the 1980s, but it wasn’t until four years ago that it was put toward an endowment.
An additional contribution of $2.8 million in 2003 made it the most ever contributed in a year, bringing the total to $7.3 million. In 2004, $2.4 million was put into the endowment; $4.1 million in 2005 and $5.6 million in 2006.
This year, the contribution will be considerably less ” $767,000 ” because more than $1 million will be put toward capital improvements, Menter said.
The Wheeler’s operating budget is roughly $3.6 million annually, which includes about $1 million in revenues generated in ticket sales and commissions, as well as bar concessions and theater rentals. The remaining money generated from the RETT is put into the endowment.
The tax revenue that supports the Wheeler Opera House is 20 percent behind in collections over last year. However, because city officials budget conservatively, the tax revenue is 36 percent ahead of the 2007 budget.
Year-to-date, the Wheeler Opera House transfer tax collections through August amount to $3,509,125.
Not only do city officials budget conservatively in how much the RETT will generate in revenue, but they invest the money with low risk federal agency investment bonds that are secure and backed by the federal government, according to state law.
As a result, the Wheeler fund could make a lot more in interest but doesn’t because the investment risk would be too great.
The $20 million fund earns about $1 million a year, which amounts to between 4.8 percent and 5.3 percent in interest.
But since Aspen is a charter city, the investment policy could be changed by way of ordinance. The issue has been discussed amongst Menter and other finance officials.
“The question is what’s the best way for that endowment fund to be invested? But because we are so far ahead of our projections it’s not that big of an issue,” Menter said. “We believe there’s an opportunity to add value to the endowment that in the future we might ask the City Council to consider options.”
Ron Erickson, chairman of the Wheeler board of directors, said there’s been discussion that the Wheeler endowment could get 501c(3) nonprofit status, which would lift RETT restrictions on how money is spent. It also would allow officials to invest in risky, yet more profitable places.
“They see opportunities to grow even faster,” Erickson said.
The Wheeler funds $400,000 in grants to local nonprofits, of which only $100,000 can be used from RETT revenue. The other $300,000 is taken from revenue generated by the Wheeler.
Erickson pointed out that the Wheeler also subsidizes the films shown throughout the year, as well as nonprofit organizations using the facility and numerous community co-production ventures.
“I would love to get rid of the RETT because it frees us from the restrictions of how much we can give to the nonprofits,” he said. “Our goal is to fully fund the operation of the Wheeler at the current level, which is like 97 or 98 percent occupancy, and provide additional funds for nonprofits.”
The endowment was originally intended to provide a permanent funding source without tax dollars for the Wheeler once the RETT expires. If voters have the opportunity in 2018 to extend it, the endowment could fund a second performing arts center. A new facility also could have a separate funding source if the RETT expires.
While there are no current plans to buy land and build an additional facility, there have been discussions on a conceptual level to extend the Wheeler’s services onto the open space parcel next to the historic theater on Hyman Avenue.
The small parcel was bought in 1982, specifically for future Wheeler use. A Wheeler master plan has been in the works for several years and Erickson said they are prepared to go to City Council this fall to discuss the next steps.
Erickson said he’s proud of the Wheeler and its operations, and said it couldn’t have risen to that level without the RETT, which didn’t produce much in the 1980s. But now people are “awestruck” by how much it generates.
“We tend to take the RETT for granted,” he said. “It wasn’t until 1991 that the RETT became meaningful.”
He added that when it was realized that the Wheeler had money in its bank account, it served as a bank, loaning money to the city to subsidize services like the ice rink and street improvements.
“When we started getting money it was like there was a bull’s-eye on the side of the building,” Erickson said.