Overture Center's owner wants to give the $205 million arts facility to the city of Madison or another entity for $1 as part of a complex deal to secure its long-term future, a letter obtained by the Wisconsin State Journal shows.

City officials are balking about taking responsibility for the gleaming but financially strapped facility on the 200 block of State Street.

The alternative may be a bank foreclosure on the building, the letter says.

Overture was built with a $205 million gift from philanthropist W. Jerome Frautschi, who created the nonprofit Overture Development Corp. to build the structure.

The ODC, which owns the building, is now proposing a plan that would retire $28 million in debt.

The plan is laid out in a two-page letter to Mayor Dave Cieslewicz, the Madison Cultural Arts District, which operates Overture, Frautschi, and three lenders.

The proposal would give the new owner — the city, the arts district or some new entity — a world-class facility and also the responsibility of running and maintaining it.

The plan would also deplete the arts district's current reserves and eliminate a $500,000 annual payment Overture now makes to the city in lieu of taxes.

"I don't think it's a good deal for city taxpayers," Cieslewicz said Tuesday. "This is an issue between ODC and the banks."

Still, Cieslewicz intends to bring the ODC's proposal to the city's financial committee, the Board of Estimates, on Monday.

"I want to take the temperature of the City Council," he said.

Council President Tim Bruer voiced opposition to the proposal, saying Overture for too long has resisted calls for an independent audit of finances and a restructuring.

"The city is in no position to absorb this liability and responsibility," Bruer said.

ODC president George Austin, who signed the letter, could not be reached.

Overture president Tom Carto said the arts district has no position on the proposal and that its executive committee will discuss the plan Wednesday morning.

"I think it's probably going to help get everyone at the table and start talking about next steps," Carto said. "That's what's important."

Lenders want the ODC to recommend a solution for the $28 million, Austin's letter says.

Currently, Frautschi's $4 million firewall is covering the loan interest payments, the letter says. The current financing arrangement needs quick attention because the funds available for a solution will decrease $200,000 a month due to interest payments, it says.

"The plan needs to be acted upon in the first quarter of 2009," the letter says.

Under the proposal, the ODC would transfer title to the center to the city, the arts district or another entity for $1.

Currently, the city has little or no liability beyond a $1.7 million annual contribution that reflects the contribution to the old Madison Civic Center plus interest, Cieslewicz said.

But under the ODC's plan, city taxpayers would also assume 43 percent of the cost of the debt retirement — $12 million.

"I don't think it's a good idea," the mayor said.

Initially, half of Frautschi's $205 million gift was put in a trust for operations and maintenance and the rest coupled with a $115 million loan to build the facility.

The idea was to use the gift to both build the facility and secure its long-term future.

But that plan faltered in a sluggish stock market, and the City Council in late 2005 approved a controversial refinancing under which the trust covered about $7.4 million in annual debt payments and delivered $1.4 million annually to the arts district for the operations and maintenance reserve. Frautschi, the arts district and the city provided "firewalls" to guarantee payments on part of the loan.

Cieslewicz, who opposed the refinancing, had wanted Frautschi to use the trust to pay for the building so the city could buy it for $1 and run it. But the scenario is now different because creditors hold a multimillion-dollar mortgage, he said.

After the refinancing, the trust's investments didn't earn anywhere near the sums needed to meet responsibilities.

Last fall, lenders forced the ODC to liquidate the trust fund to cover $87.3 million of the construction loans, leaving a $28 million piece backed by Frautschi, the arts district and the city that comes due in 2011.

In October, a private group of business and community leaders led by University Research Park director Mark Bugher called for sweeping changes to stabilize Overture's finances.

In early December, Overture cut 15 positions — 25 percent of its authorized work force — to balance the facility's operating budget next year. The cuts eliminated four vacant jobs and 10.8 occupied positions.

 The ODC's plan

The Overture Development Corp. is proposing a plan that would retire $28 million in debt.

• W. Jerome Frautschi would devote his $4 million firewall.

• The arts district would use $4 million pledged for a firewall — most of its reserves.

• The city would release the arts district from its $500,000 annual payment it makes in lieu of taxes. The ODC would use that money at 3 percent interest to provide $12 million over thirty years.

• The lenders — JP Morgan Chase Bank, U.S. Bank and M&I Bank would write down $8 million.