Should Summerfest Pay Higher Rent?
Harbor House pays at least 7 times more than Summerfest per acre of lakefront land.
What are the 75 acres of lakefront land that Summerfest occupies worth?
In the first decades of Summerfest, the festival paid just $1 for all that land. But the festival was in essence a city event. It had been launched in 1968 as the brainchild of Mayor Henry Maier, who served from 1960 to 1988, and to assure its success he insisted on the $1 charge. He even wrote — and often sang — a song about the festival, “The Summerfest Polka”.
The city also spent generously to build the infrastructure of Summerfest. In the early 1980s John Pawasarat and I wrote a story for Milwaukee Magazine which reported on a city-created TIF plan which spent $42 million on improvements to the Summerfest area. At the time, 22 of 25 members of Summerfest’s Technical Advisory Board were city-paid technicians, and the heads of both the City Department of Development (DCD)and Department of Public Works (DPW) spent many hours on city time overseeing festival improvements. (The TIF was not repaid by Summerfest, which pays no taxes: the city drew the TIF district around an Northwestern Mutual expansion project, and grabbed the money from those taxes.)
When John Norquist took over as mayor in 1988 he was left with a festival he had limited control over. “The Maier administration had already greatly reduced the city’s control of the fest just before I became mayor” by cutting the number of city appointees to the Summefest board, he tells Urban Milwaukee. At some point the festival also became a separate non-profit under the name World Festival Inc, which gave it additional separation from the city.
“Bo hand picked the board except for a few city reps,” recalls Bill Christofferson, who served as Norquist’s chief of staff for some years and was a city appointee to the board. “I think we had about 4 or 5 votes out of 21 or something, There were two issues I tried to do something about on behalf of the taxpayers — the lease [with its annual rent] and public access to the lakefront. Whenever the lease came up, they’d threaten to raise admission and beer prices.”
For Norquist is was a distraction to other matters he considered more important “Frankly, it was a pain in the ass to have to manage the never ending saga Summerfest created about how persecuted they were by the evil city government,” he says. “Summerfest constantly stirred up conflict with the city and peddled it to the media.”
In perhaps the most famous example, Black called Norquist a “Nazi” at a private meeting of a civic leadership group.
“My view after being mayor for a while was for the city to provide no subsidy, no uncompensated services and in return have no representation on the the festival’s board,” Norquist recalls. And toward the end of his tenure the city and Summerfest negotiated a deal that increased the rent to $1 million per year and dropped the city’s representatives on the board to two: one appointed by the mayor and one by the Common Council President.
That left the festival still connected to the city, though less so, and still overseen by the city’s Harbor Commission. In 2009, the city negotiated a new lease based on the Norquist-era agreement, with a gradually escalating rent. By then the addition of the Milwaukee Art Museum’s Calatrava addition and the opening of Discovery World had made the lakefront a more prime location, a change that would continue with the opening of the high-end restaurant, Harbor House.
Barrett says the new lease was done with an understanding the rent would not be at market value. “That was always implied,” he tells Urban Milwaukee. The lease called for a gradually escalating rent, which is $1.8 million for this year.
What is the true market value? Harbor House, a for-profit restaurant, has a lease with the city whereby it pays a minimum of $200,000 and maximum of $400,000 per year (based on a percent of its gross sales) for its 1.66 acres of land. At that price Summerfest might be paying $9 to $18 million per year for its 75 acres.
On the other hand the non-profit Discovery World paid only a one-time lease fee of $390,000 and is charged an annual rent of 5 percent of all amounts in excess of $5 million in net income, a threshold of earnings it has never hit.
But there’s another complication. Unlike Discovery World and Harbor House, Summerfest draws massive crowds which requires a costly level of police services. The lease with the city also includes a fee for police services provided by the Milwaukee Police Department, which was just $134,392 in 2019. The cost of those services was $813,297, leaving taxpayers footing the bill for $678,905 in uncompensated services.
“What was not contemplated when the lease was signed was the dramatic increase in the security costs, not just at Summerfest but nationally in the last ten years,” Barrett notes. Mass shootings and other horrific incidents have left police using far more personnel at events drawing huge crowds.
Back in 2011, Barrett notes, the cost of policing Summerfest was $313,000.
“The fact that security costs have risen by half a million dollars while we have to cut the number of police in the city due to budget problems underscores why there is a problem here,” Barrett says.
Yet the leadership of Summerfest flatly dismissed the issue, suggesting the city take the money out of its rent. That would drop the net rent to just over $1.1 million — nearly as low as it was paying 20 years ago.
While there has always been tension between the Summerfest board and the city, going back decades, the response of Summerfest to the city’s plea for help with police costs still shocked city officials. First, festival representatives blew off a scheduled meeting with their landlord the Harbor Commission. Then Summerfest board chairman Howard Sosoff rejected the idea that the festival was a public-private entity or partnership with the city, telling Urban Milwaukee that the group is “a private corporation.”
To Barrett this is complete change in what the festival was, into a private entity for whom “the rising cost of police services is not a concern but just a cost they can pass on to the taxpayers of Milwaukee.”
Actually, Smiley is required by the federal government to disclose this salary. All non-profits must file an annual 990 tax form, which provides detailed financial information, including the top salaries paid. The reason is obvious: the taxpayers who subsidize and donors who help support tax-exempt non-profits have a right to know how these groups spend their money.
As for idea that Summerfest receives zero tax dollars, one of the things Smiley did to earn his huge salary hikes was negotiate a deal that that gave Summerfest $25 million in revenue bonds from the Redevelopment Authority of the City of Milwaukee. This meant the bonds are exempt from federal taxes — another subsidy from the taxpayers.
But now that the bonds have been paid off, Smiley and the board have decided they can simply blow off the city’s concerns. When asked by Urban Milwaukee how many of its 27 board members live in the City of Milwaukee, the festival declined to answer. That, too, is apparently none of the public’s business.
Ron San Felippo, a longtime real estate developer who served for 10 years on the Summerfest Board, followed by 19 years on the Harbor Commission, where he is vice-president of the board, told Urban Milwaukee he was surprised that Summerfest no longer considered the city a partner. In that case, he suggested, “there’s going to be some very hard words when their lease comes up. They’re sitting on some of the most valuable land in the city. In the future they might have to pay the actual value of what they’re getting.”
San Felippo, notes Barrett, “is not someone who is hostile to Summerfest. He gets business. So the fact that he makes that suggestion shows how frustrated Harbor Commissioners are.”
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More about the Summerfest File
- Murphy’s Law: Summerfest Pays No Net Rent - Bruce Murphy - Nov 26th, 2019
- Murphy’s Law: Should Summerfest Pay Higher Rent? - Bruce Murphy - Nov 14th, 2019
- Murphy’s Law: Summerfest CEO Awarded $2.33 Million - Bruce Murphy - Nov 8th, 2019
- Murphy’s Law: Summerfest Blows Off City Meeting - Bruce Murphy - Nov 7th, 2019
- City Hall: Milwaukee Losing As Summerfest Safety Costs Grow Quickly - Jeramey Jannene - Aug 8th, 2019