City tells ESO to pay up on back rent
By Janelle Walker For The Courier-News December 3, 2012 8:18PM
The Elgin Symphony Orchestra performs during a Senior Services Associates of Elgin and the Elgin Symphony Orchestra event at Hemmens Cultural Center in Elgin, Ill., on Friday, March 4, 2011. Sun-Times Media~File Photo
Updated: December 4, 2012 9:39AM
ELGIN — On May 6, 2011, the money ran out.
That was the last time the city of Elgin used its annual allocation to the Elgin Symphony Orchestra to pay itself for ESO’s Hemmens Cultural Arts Center rental.
Since then, the ESO has not paid its rental bill for the 1,200-seat downtown arts venue, according to the city, which says that as of Nov. 30, the symphony owes it $214,217 for its rental use of Hemmens.
On Wednesday, a letter was both emailed and sent to ESO chief executive officer David Bearden, informing him and the symphony board that a plan for repayment of that bill must be set up for the orchestra to continue its relationship with Elgin.
That letter, signed by City Manager Sean Stegall, informed the symphony that “It is critical that a repayment plan be established as soon as possible in order to allow for the continued use of the Hemmens.”
That letter, Stegall said this week, came after a few discussions from Aug. 15 and on — both in person and over the phone — regarding the ESO’s appeal for additional funding and the issue of rental payment.
As part of that request, the city did its own review of ESO’s budget and determined that ESO’s “structural deficit is in the range of $750,000 to $1,000,000,” according to that letter.
As the symphony celebrates its 62nd year, some wonder if the group will see its 63rd, as the group seems to be outspending incoming funds and with the city looking hard at those unpaid bills.
Bearden disputed the city’s contention that its budget was in a structural deficit — continually spending more money than is coming in. Many symphonies and arts organizations, he said, pay their bills for one year in the following year, as season tickets and other funds come in.
Bearden also said that even after those later summer and early fall meetings with city staff, he was surprised to get the letter last week asking for a Hemmens rental payment plan. The 2012-13 ESO budget — prepared in April — had assumed ESO would continue to get some funding from the city and many of the discounts afforded to it in rental contracts for Hemmens, he said.
Bearden also noted that as he was on the board and not CEO at the time, he is unsure of how that budget was developed. He stepped into that role in May.
History of funding
The city of Elgin’s ESO funding has gone from $146,680 in 2005 “when times were good,” to none for the current, 2012 city budget, Stegall said.
That previous, $146,680 in funding did not include times when the city would provide grants — as much as $30,000 out of the Riverboat fund — for special performances, Stegall said. City funding for the symphony, including grants, may have peaked at around $175,000 a year, he added.
Other than the Convention and Visitor’s Bureau, ESO was the largest non-profit expenditure by the city at that time, he said.
But since 2005, Stegall said, the city has funded ESO to a lesser and lesser extent — down to $89,000 in 2011 — and there was no direct cash, discounts or other consideration for its use of Hemmens as of the current budget.
And, he added, as the ESO got behind on its bills, the city’s allocation was no longer sent to the organization. Instead, he said, the city paid itself for the Hemmens rental — the money that ran out in May 2011.
There is some ongoing support from the city, however. The ESO building at 20 DuPage Court, also the home of the Elgin Chamber of Commerce, is owned by Elgin. Neither are charged rent, Stegall said. According to the ESO’s own auditors, that saved the organization $41,960 in 2010-11.
How it got here
The issue came to a head when the ESO sought additional city funding — $100,000 which, according to Bearden, would match a grant two donors had offered ESO.
“They came in and said they needed financial support to remain a viable entity,” Stegall said.
At the end of 2011, he added, ESO had also asked the city to forgive its outstanding rent bill to clear up the balance sheet. The city’s answer was clear, Stegall said. “We cannot forgive it and you do owe it.”
The ESO’s own 2011 financial audit — the last audit completed — does refer to those outstanding debts. According to the auditor’s report, the ESO “incurred a net loss of $675,175 during the year ended June 30, 2011. As of that date, the organization’s current liabilities exceed its current assets by $541,437 and its total liabilities exceed its total assets by $23,469. Those factors create an uncertainty about the organization’s ability to continue as a going concern,” the auditor’s management letter states.
It is unlikely, Stegall said, that the city council would approve financial support for ESO at this time.
“It would not be a good use of funds. They had not secured enough money to make our contribution make a significant difference” to the ongoing deficit.
“We did not want to put good money after bad,” Stegall said.
Neither, Stegall said, can the city council be perceived as treating the ESO differently than other non-profit groups, particularly those who have used the Hemmens for events.
Righting the ship
Bearden said there was never a discussion, either in person or by phone, that indicated to him that the ESO was in jeopardy of losing its spot at Hemmens.
“There was no indication that we were in danger of occupancy. That was surprising,” he said this week.
He referred to a letter dated July 1, 2010, from Colleen Lavery, Elgin’s chief financial officer, that indicated an annual allocation of $90,080 through 2014.
That letter, Lavery said, was based on the city budget at that time. Additional letters were given to all non-profit groups following city budget discussion at this time last year, indicating Elgin would not be funding them as they had in the past, Stegall said.
Regardless of funding from the city, Bearden said, ESO is working on righting its financial ship. Officials are working to cut the budget from $3 million to between $2.2 million to $2.4 million. That includes cutting administrative staff and renegotiating its contract with the musicians. That contract is up for renewal this coming summer.
ESO also is working to increase donations from its benefactors and increasing grant funding — 65 percent of its total budget.
In September, ESO did get a $25,000 check from the village of Schaumburg. The symphony plays at the 400-seat Prairie Center for the Performing Arts four times a year, Bearden said.
“Our argument was … we are asking the city of Elgin to do this, so we ask you for the same at the same time. Within two to three weeks, we had a check,” Bearden said.
“We are absolutely ruthless and are looking at every single cost. We are challenging everything we do every day. We have to cut the costs.”