BUILD IT AND THEY WILL FUND IT: WRONG
DATELINE: May 6, 2008, Chicago
The Museum of Broadcast Communications was located in the Chicago Cultural Center, a temporary location, for many years. Over the last several years, the museum has been constructing a new museum on Chicago's State Street. The museum archives hold over 85,000 hours of broadcast and radio programming.
We hadn't been actively following the construction's progress, but we did notice when we walked past the facility that it was taking what seemed to be a...
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
long time to complete construction. Now we know why. Robert Feder of the Chicago Sun-Times is reporting today that Pepper Construction Company has filed suit to foreclose on its mortgage. Museum's Contractor Sues for Millions in Unpaid Bills. The amount due now exceeds $4.5 million. According to Eddie Baeb of Crain's Chicago Business, the project was originally slated to cost somewhere around $20 million, but would now, according to museum president Bruce DuMont, cost $30 million to complete. Broadcast Museum Faces Foreclosure Suit, May 5, 2008.
To date, Pepper has performed $7.3 million in work and only received $2.9 million in payments. Construction has been on hold since 2006. According to Robert Manor of the Tribune, DuMont doesn't dispute that the money is owed.
The glitch: Illinois Governor Rod Blagojveich allegedly promised the museum $8 million in state funding, but according to DuMont, Blagojevich has yet to produce the funding. Crain's is reporting that Blagojeich's staff denies that there ever was a promise to provide state funding. That denial strongly suggests that the museum had nothing in writing. As anyone who lives in Illinois knows, Blagojeich is not one to be trusted. The denial means an $8 million check from the already cash-strapped State of Illinois is unlikely to be on its way anytime soon.
In our view, it is appropriate that the archives of the museum house vintage Bozo the Clown television shows. Any nonprofit board that would start construction on a $20 million project which is highly dependent on promises from Governor Blagojevich for 40% of its funding is filled with a bunch of Bozos, particularly if nothing was in writing. No offense Bozo.
Our cardinal rule when it comes to a major pledge and construction: An organization should never begin construction until it has a significant portion of the pledge converted into cash. If some of the pledge remains unpaid when the shovel hits the ground, the organization should have a security interest for the remaining funds or alternative funding in hand. This rule applies equally to private and public promises.
The museum's current plans to jumpstart the project strike us as nothing short of pie in the sky. A Johnny Rockets restaurant has agreed to lease space in the building, according to Crain's, but we assume any lease is contingent on completion of the building. DuMont also hopes to lease space for retail use, with the plan to then pledge the leases to secure a bank loan to complete construction. We aren't real estate finance experts, but it is hard for us to see a bank lending against leases on an uncompleted building where construction has been stopped for two years, a foreclosure lawsuit has been filed, and costs are running $10 million or 50% over the original budget. According to the Tribune, the plan to lease space to retailers was not originally in the plans. Now the museum would occupy the second and third floors and tenants would occupy the first and fourth (presumably office space) floors. In other words, the museum is cannibalizing its new home in an effort to save it.
Not surprisingly, the problems have hurt fundraising. Contributions dropped from $3.07 million in 2004 to $1.62 million in 2006. DuMont has tried to sell naming rights, hoping to get $8 million, but to date both Oprah Winfrey and Paul Harvey have turned down the opportunity. Harvey, and his late wife, Angel, have donated more than $6 million to the museum since its inception, according to reporting in Crain's. You would think the museum would give Harvey a discount, but in these situations, it isn't about what you did for me yesterday.
There certainly is a lot of blame to go around. The donors should have demanded far more specificity about the project's feasibility and the State of Illinois's commitment to the project before donating money. Paul and Angel Harvey donated $1 million to the capital campaign and Oprah Winfrey donated $250,000.
The board never should have approved commencing construction until it was sure that it had the funding in place to complete the project. We can only wonder whether the entire project was ill-conceived in terms of assessing ongoing public interest in a broadcast communication's museum. If the board did such a lousy job in overseeing the capital portion of the project, we can only wonder how thoroughly it reviewed projected attendance figures and revenue/expense estimates for the first five years of operations.
We also have to question Pepper Construction's judgment. We would have assumed they would have taken a close look at the construction financing and budget before agreeing to the contract and commencing construction.
And of course there is Governor Blagojveich, who is well-known for his crafty and convenient denials. But unrelated events unfolding inside the Federal courthouse may eventually result in some rough justice for the governor.
And where is Attorney General Lisa Madigan when you need her to protect charities?
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
Copyright 2008, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
