Council Wants New Deal, Says Convention Center ‘Outsmarted’ City

Baird Center rendering. Rendering by tvsdesign and Eppstein Uhen Architects

The City of Milwaukee wants to renegotiate its revenue-sharing agreement with the Wisconsin Center District (WCD). And it believes the district should do so as a matter of “goodwill” to a partner.

In April 2020, the Common Council approved a controversial agreement that some council members once thought would pay the city more than $1 million per year. It came as part of the city’s endorsement of a loan guarantee for the Baird Center expansion.

But after making two ramp-up payments in 2022 and 2023, WCD informed city officials its not likely to need to make payments in 2024 and 2025. The news comes as WCD is likely to record approximately $28 million in net income in 2023 and will require the city to cut $750,000 from its proposed budget because the 2024 payment was already planned for.

“Frankly, they outsmarted us and that’s okay. They were doing their job,” said Alderman Robert Bauman to the Steering and Rules Committee on Oct. 16.

Bauman, in 2020, had warned such a thing might happen.

He expressed displeasure at the time that the agreement wasn’t even at the point of being a true term sheet and hadn’t been reviewed by the City Attorney. “All these variables competent lawyers would provide advice on and draft to protect the city’s interest,” said Bauman in an early pandemic meeting. He could later be heard on a hot mic lamenting the deal’s “stupidity.”

On Monday, he again hammered the deal.

“Net income sounds to be self defining,” said Bauman. “However, the net income in the agreement is different than the net income on their financial statements. There is all kinds of adjustments and deductions.”

“Net income” is defined in the deal as net revenue, less expenses and deducting capital expenditures, grants, bond premiums, amortization and before deducting depreciation.

Bauman, an attorney, called the complicated definition a “classic legal trick.”

But Alderwoman Milele A. Coggs, also an attorney and a member of the WCD board with Bauman, said she didn’t think that was the intention of WCD. “I don’t think a nonpayment was a thought,” she said. Coggs supported the original deal.

The city is to be paid $1 million each year the WCD records between $1 million and $30 million in net income over the life of the expansion project’s debt. For each additional $10 million in incremental income, the city would receive an additional $1 million. The WCD made ramp-up payments of $250,000 in 2022 and $500,0000 in 2023. But it’s unlikely to be required to make a $750,000 payment in 2024, nor a $1 million payment in 2025, according to testimony last week of WCD CFO Steve Marsh.

The agreement was negotiated by then-council president Ashanti Hamilton and then-mayor Tom Barrett‘s chief of staff Paul Vornholt.

WCD vice president of marketing and communication Sarah Maio told Urban Milwaukee that the organization is aware of the request. “We are always open to productive, constructive discussions with any of our partners. Any substantive changes to the current agreement would require WCD Board authorization,” she said.

The city has six members on the 17-member board: Bauman, Coggs. José G. Pérez are council appointees, Sawa serves in her role as comptroller and Mayor Cavalier Johnson has appointed Gerard Randall while Grady Crosby is a holdover from Barrett.

Bauman, in 2020, was credited with determining the city had leverage to ask for the money. WCD needed the city’s endorsement of a state loan guarantee that would save up to $50 million on the cost of borrowing money for what is currently a $456 million project.

But the alderman and five of his colleagues, Pérez, Nik Kovac, Nikiya Dodd, Robert Donovan and Michael Murphy, tried to slow down the deal for more negotiation. But they were unsuccessful and the full council unanimously adopted Hamilton’s proposal.

Then-alderman Cavalier Johnson voted for the agreement while acknowledging it was riskier than he would have liked.

In addition to Bauman, council members Coggs, Pérez, Murphy, Russell W. Stamper, II, Mark Chambers, Jr. and Mark Borkowski are sponsoring the negotiation request. The full council, largely as a formality, must endorse the request at its Oct. 31 meeting.

Bauman has a target he would like the negotiating team to aim for: a share of the 7% hotel tax that used to go to the city. The tax was assigned to the district as part of the Wisconsin Center District’s 1990s creation. The tax is estimated to yield the district $17 million this year.

The Baird Center expansion is scheduled to open in May 2024.

Expansion Renderings

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Related Legislation: File 230928