By RICK GREEN, LACONIA DAILY SUN
LACONIA — Facing higher-than-expected construction costs for refurbishing the historic Colonial Theatre, Mayor Ed Engler presented a plan to the City Council Monday under which the city would inject an additional $1.2 million into the project.
This would bring the city's total investment to $4.2 million.
The City Council is to vote on the proposal at its next meeting, Sept. 25. In a straw poll on Monday night the council expressed unanimous support for the idea. Coouncilor Henry Lipman (Ward 3) was absent but Engler said he had briefed Lipman on the plan and knew him to be supportive as well.
Options for coming up with the $1.2 million include tapping the city's operating budget, debt financing or use of the city's Downtown Tax Increment Financing District, City Manager Scott Myers said Tuesday.
The council's Finance Subcommittee will meet immediately before the next council meeting and make a recommendation.
The remaining $3 million is to come out of city reserves.
Bids come in high
The original budget estimate for the project was $14.61 million, but construction bids came in high. Efforts were made to reduce costs back to the original estimate, but this would have produced an unsuitable finished product, Engler told councilors.
“To put it in blunt English, the resulting product was not worth doing at that level,” he said.
The cost-cutting exercise yielded a theater that wouldn't have any equipment, such as lighting, a curtain, a screen, rigging and audio. That equipment alone costs almost $900,000.
In order to have a proper theater, a spending plan was set at $17.19 million, leaving a funding gap of about $2.4 million.
To close the gap, the Belknap Economic Development Council, which owns the 103-year-old theater, would combine the additional city money with a Community Development Block Grant of $470,000 from the New Hampshire Community Development Finance Authority and a loan from the New Hampshire Business Finance Authority of $782,182.
The development council's board is to meet Friday to consider approving the request for that loan.
The city has already loaned $1.4 million to the development council to buy the theater. When construction financing is finalized, that loan is to be repaid. Then, the city plans to grant a new loan over a seven-year term in the amount of $3 million. Under the new proposal, that loan would increase to $4.2 million.
Under the current agreement, the city has the option of rolling the loan into ownership of the theater after seven years. The new plan would change that from an option to a commitment.
By providing this commitment, the city would reduce risk for the development authority, which could be hard-pressed to survive if the city demanded the $4.2 million instead of rolling it into ownership of the theater, Engler said.
“BEDC is taking a significant risk here, a risk that, frankly, one could argue is beyond their means,” Engler said.
The city also agreed to rent the theater for $120,000 yearly when the project was done. Under the new plan, the rent would grow to $144,000 to offset the Economic Development Council's increased costs. The development council will also realize income from 14 market-rate apartments and four stores that are part of the project.
Heat and lights
Also, to help defray the development council's expenses, the city would pay for heating and lighting the theater portion of the project, for a cost of about $52,000 a year.
“In a lot of ways, that makes a lot of sense,” Engler said. “We are the ones who are going to be responsible for when the lights are on, or the air conditioning is on, or what not.”
Even though the city's financial commitment would grow under the proposal, there are a number of positives for the city, Engler said.
The development council pays 2.75 percent interest on the money it borrows from the city. On a $3 million loan, that yields $82,500 in annual interest, compared to just $15,000 the city would make on keeping these reserves in low-yield deposits.
Also, since the theater refurbishment is being financed largely through federal money, the city's $4.2 million investment in the project will represent only a portion of what the work really costs.
“From a personal standpoint, my commitment, and I know most, if not all, of your commitment from the very beginning is we've been operating under the assumption that this project is going to be a success and in seven years whoever is sitting at this table will be happy to buy that $17 million, or most of that $17 million theater for $4.2 million,” Engler said.
Federal New Markets Tax Credits provided to help fund the project will actually grow from $4.84 million to $5.65 million with the increase in the price tag of the work.
City Manager Scott Myers said Tuesday the intention all along for the project is to produce something that will be an asset to the community. Whether it will make money is another question.
“A lot of city amenities like parks and beaches don't pay for themselves through tax dollars,” he said. “In a perfect scenario, we'd love to run it at a profit or at break-even.”
Costs and funding
Major spending categories in the current plan include almost $11.4 million in hard costs, including equipment.
Soft costs total $3.8 million, including $680,000 for architect fees, $350,000 in legal fees and $400,000 in developer fees.
Funding sources include $5.6 million in New Markets Tax Credits, $1.5 million from private donations/foundations, $2.4 million in historic tax credits and $4.2 million in the city loan.