With $1.5 million from the city, the Napa Valley Opera House intends to wipe out its $3.4 million debt by year’s end as part of a plan to safeguard its future.
The city’s financial support comes as a loan that won’t have to be repaid if the Opera House follows through on plans for greater economic self-sufficiency.
In effect, the city’s contribution will serve as a challenge grant, making it easier for Opera House supporters to run a capital campaign to eliminate the debt incurred a decade ago during the building’s restoration, Bob Almeida, chair of the Opera House’s board of trustees, said Thursday.
The city is committing special redevelopment money that must be spent on downtown revitalization. By obligating the funds, the city further safeguards redevelopment money for local use that Gov. Jerry Brown has been threatening to pull from redevelopment agencies statewide to help solve the state’s budget crisis.
Council members voted unanimously Tuesday to make the $1.5 million forgivable loan, saying that the Opera House was a community “jewel” deserving assistance.
“This isn’t a giveaway of funds. The city is actually getting something,” Councilman Mark van Gorder said.
The deal requires the Opera House to transfer ownership of the Main Street building, a National Register landmark built in 1879, to a new nonprofit, Historic Theatre of Napa Valley.
In turn, Historic Theatre will contract with the Opera House, also a nonprofit, to operate the facility as a venue for entertainment and activities.
This will allow the Opera House to focus on programming, while maintenance and building improvements become the job of Historic Theatre, Almeida said.
Historic Theatre of Napa Valley is obligated to never use the property as collateral for a loan or otherwise encumber it. “It will essentially be a community facility for the rest of its life,” Almeida said.
As part of the deal, the city is requiring that the Opera House rent its facilities at a discounted rate to nonprofit organizations for their first two events of the year.
After that, the Opera House can charge a higher rate. “At some point, the Opera House has to make a profit,” Cassandra Walker, the city’s community development director, told the council.
The deal gives the city the right to rent the Opera House for 24 days a year “at cost” for city functions.
The Opera House charges $2,500 for a commercial rental, while nonprofits pay $1,500, Almeida told the council. Some community events, such as the fundraiser for Napa’s sister city in Japan, are free, he said.
Eliminating the building’s debt will save the Opera House about $100,000 annually in interest payments, Almeida said.
“To have $100,000 less would be wonderful. It’s a strain to have to do that every year,” he said.
Until now, Opera House supporters have had to raise about $800,000 annually to balance the facility’s $2 million operating budget.
As a nonprofit with a theater of only 455 seats, the Opera House does remarkably well to generate 60 percent of its revenues through ticket sales, Alameida said. Nationally, small nonprofit venues typically generate only 40 percent, he said.
Contributions from the Opera House’s board of directors and the Napa Valley Opera House League plug about half of the annual deficit. The other half comes from “non-insider sources,” Almeida said.
Opera House backers have several initiatives in the works that may increase revenues by $200,000 annually, Alameida said.
The Opera House hosts 100 to 120 events annually, attracting nearly 30,000 customers, Almeida said. In the future, the Opera House expects to ramp up to as many as 220 events per year, many of them run by community organizations, he said. Films and other events will be added to the mix.
Councilman Jim Krider said the Opera House was the ideal candidate to receive redevelopment funds, which come from the growth in property tax revenue in downtown.
The city is using redevelopment funds that had not been committed to any other downtown project, Jennifer LaLiberté, the city’s redevelopment manger, said Thursday.
The agency collects about $5 million annually from the downtown redevelopment zone. This figure represents the increase in property values since redevelopment started more than 40 years ago.
Downtown redevelopment is scheduled to phase out at the end of 2012, ending the city’s ability to pay for new projects.
Since its reopening in 2002, the Opera House has served as a catalyst for new restaurants and had raised the bar for development downtown, city officials said. Opera House customers spend an additional $2.4 million annually in downtown, the city estimated.
Having secured city support and some large private donations, backers will take the Opera House’s capital campaign public, he said.