The Intersection of Global Warming, Winter Sports, and Madison’s Priorities

Why is Madison Considering Forgiving the Debt of Two Ice Arenas?

This coming Tuesday, November 26, a Common Council resolution will be referred for introduction which proposes the eventual forgiveness of $1,613,365 in debt owed by Madison Ice, Inc., a nonprofit (Legistar 86169). It is a complex transaction which I just learned about on October 18.

I’m still digging into the history and details of the proposal. Alder Latimer Burris and I will be visiting one of the Madison Ice facilities on Monday. I see this proposal as one of those instances where there are competing choices for good. Thoughtful people will arrive at different conclusions about the best path forward. I thought it was time for this proposal to be presented for open and public debate, so I agreed to sponsor the resolution.

The critical path leads through the Finance Committee on December 2. Finance will provide its recommendation to the Common Council for its December 10 meeting. If this is a topic you think is important, please send your comments to financecommittee@cityofmadison.com and allalders@cityofmadison.com.

First, some background.

Global Warming and Winter Sports

A long time ago when I was a kid, as soon as the ice froze on the chain-of-lakes in Southeast Wisconsin, we would clear patches for ice skating and hockey, reveling in the joy of frigid air and vigorous exercise. I remember fondly the sub-zero night before my baby brother’s wedding when Lake Nagawika was frozen to a remarkable sheen, and we skated from one end to the other at 1 in the morning under a cloudless sky.

Kids and adults can still do that in Madison – sort of. As our planet warms, the number of days for high quality outdoor skating is becoming more uncertain. City owned skating areas such as in Tenney Park are difficult to sustain. There are numerous skating ponds created and serviced by volunteers as well. I’ve been on the board of the Wexford Village Homes Association for eleven years and each winter we flood an area in Wexford Park. Last winter it only survived for a few days. Not surprisingly, when all city agencies were required to submit ideas for reducing their budgets by 5%, Parks recommended terminating all outdoor ice rink activities.

Indoor ice facilities are likely to be essential for sustaining winter sports.

Madison Sold Its Two Ice Arenas in 2004

For years Madison owned and operated two indoor ice arenas. The Madison Ice Arena at 725 Forward Drive (District 19 – Alder Guequierre) has two rinks supporting general skating, organized team hockey, and lessons. The Hartmeyer Arena at 1834 Commercial Avenue (District 12 – Alder Latimer Burris) played a pivotal role in the rebirth of UW’s legendary hockey program and has seating for 695.

Eventually, the City decided it should not be in the business of ice arenas for a variety of financial and operational reasons. In 2004, Madison sold the two arenas to Madison Ice, Inc., a nonprofit formed for the purpose. The sale price for the two arenas was $1.1 million. Payment was to be in semi-annual installments of $12,358 of principal and interest for each arena over thirty years. The vehicle used was a land contract, which means that upon an uncured default, the facilities would return to City ownership. This is different than a mortgage where default leads to a lengthy foreclosure action that can eventually result in a “Sherriff’s Sale” to the highest bidder, which is sometimes the lender.

Both facilities require routine maintenance and occasional major capital improvements. The Hartmeyer Arena has had bigger building issues. In 2017, the City agreed to lend the nonprofit $1,075,240 to make several essential improvements. That was in the form of a ten-year loan with twenty-year amortization.

The Pandemic Impact, Default, and Current Finances

When the pandemic struck and the ice arenas had to be closed for an extended period, the nonprofit lacked the reserves to make payments on the land lease and Hartmeyer capital loan. Madison Ice, Inc. has not resumed payments since. It is in default.

After learning about the situation last October, I requested detailed financial information and future business plans. What I see is that each operation is individually generating enough income to cover normal operating costs plus a modest surplus that really needs to be reserved for bigger, long-term projects. These are aging facilities.

Hartmeyer has a more arduous path. It cannot sustain operations for long without a major capital infusion for a full roof replacement, new Chiller/HVAC/Compressor equipment, interior/exterior clean-up, locker room repairs, new Zamboni, and costs to upgrade electrical transformers not covered by Madison Gas & Electric.

At this point, the unpaid balance of the land contract for the Madison Ice Arena at 725 Forward Drive is $328,753. The unpaid balance of the land contract for the Hartmeyer Arena at 1834 Commercial Avenue is $328.752 and the balance on the capital loan is $955,860 for a total debt of $1,284,612.

The Deal

Madison’s Economic Development Division was tasked with determining whether there was a path that would lead to the survival of one or both of the ice arenas, or, failing that, the best alternatives for one or both. The potential solutions were so complex that it was agreed that possible approaches should not be added to the complex messaging needed for this year’s structural deficit considerations and property tax referendum.

The possible solution is complex with multiple layers. As it will be presented to the Finance Committee, these are the main elements:

• The two arenas need to be legally separated. A new nonprofit, East Madison Ice Collective has stepped forward to take ownership of the Hartmeyer Arena and raise the approximately $3 million in private funds needed for renovation. The original owner of both arenas, Madison Ice, Inc., would take direct ownership of Madison Ice Arena only.
• This time, ownership of the arenas would be established by a fee-simple transaction rather than a land contract, insulating Madison from most indirect liabilities.
• The unpaid debt ($ 328,753 for Madison Ice Arena and $1,284,612 for Hartmeyer) would be recognized in separate fifteen-year notes. Each would require no payments for the first five years. For the last ten years, the unpaid balances would be reduced by 10% per year until entirely forgiven.
• East Madison Ice Collective would have three years to raise the $3 million or equivalent donations of work to complete the building improvements or be in default.
• A series of terms would ensure that the facilities would continue as sports facilities.

A Short Leash

As noted above, several terms of the resulting agreements are designed to ensure that the facilities would continue to serve Madison’s need for recreational sports activities.

• If either site were to be sold for other purposes the unforgiven portion of the debt would be immediately due.
• To ensure that the facilities are well maintained and can survive unexpected shocks like a pandemic, they must each establish a maintenance reserve that reaches 25% of annual operating costs or be in default.
• They must agree to a covenant requiring continued operation as a sports facility or be in default.

Alternatives

The Finance Committee could recommend altered terms or completely reject the proposal. The Common Council could overrule any recommendation of the Finance Committee.

Certainly, one possibility would be to take possession of one or both arenas, now or as a result of future default under the new agreements. Madison is highly unlikely to return to operating an ice arena. It could issue requests for proposals (“RFP’s”) from developers to demolish the arenas and build something else, most likely affordable housing, even with some available City incentives.

Candidly, when I first heard of the problem, my initial reaction was to take possession of these valuable properties and use them to satisfy our housing needs and provide some cash to help our on-going structural deficit. Now that I see that they could be self-sustaining as ice arenas, I appreciate that it makes sense to have a broader debate, with Madison residents adding their voice to the importance of the current activities versus alternatives. Recreational facilities are part of what makes Madison a vibrant and livable city.

I hope you will add your voice to the debate.