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Background Information – City of Minneapolis and Minnesota Orchestral Association Relationship

As a result of the terms of the $14,000,000 grant provided by the State of Minnesota for the renovation of Orchestra Hall, the City of Minneapolis has a unique relationship with the Minnesota Orchestral Association.

This type of State grant must be provided to a public entity with an ownership interest in the property, so the grant was provided to the City, which then passed the funding along to the Orchestral Association. In recognition of this grant, the Orchestral Association leased the Hall property to the City for a term of 50 years, with the Orchestral Association retaining the underlying ownership of the property.

The City then leased the property back to the Orchestral Association under terms that reflect the requirements imposed on the City by the State under the Grant Agreement between the City and State. Among those requirements is the requirement that the Orchestral Association use the property to operate a performing arts center (the “Governmental Program”).

Each December, under the City’s lease agreement with the Orchestral Association, the association also is required to report to the City on whether it is able to carry out the Governmental Program and whether the operation is projected to be financially viable.

The City has now received the Orchestral Association’s first annual report since the renovation was completed, along with an opinion from its legal counsel. Now the City has up to 45 days (i.e., until about mid-January) to review it and make any necessary determinations.

The City will review the report to determine if the Orchestral Association is carrying out the Governmental Program, whether projected revenues equal or exceed projected expenses, and whether the association can meet its maintenance obligations for the facility. This review will be led by staff from the Community Planning and Economic Development Department, in consultation with other City staff.

The City will either find that the Orchestral Association is meeting its legal obligations and inform the State of its approval, or if it does not find that the association is meeting its obligations under the agreement, it will send its findings to the State, along with the steps the City proposes to take. The City Council will have final approval over any actions that are taken if it’s determined that the Orchestral Association is not meeting its legal obligations.

If the association is found to not be meeting its obligations under the agreement, the lease agreement establishes a framework that outlines what notice and cure periods are required, and what steps must be taken to cure a default on the agreement. For example, a scenario in which the City could terminate the Orchestral Association’s lease would require a long, complicated process of default notices, cure periods and special cure provisions. In the event of an uncured default the City would need to either sell its 50 year lease of the facility with the State’s permission, or if the City wanted to continue operating the Governmental Program with a new operator, the City would need to compensate the association for its investment in the facility, which is about $70 million.
 

Last updated Dec. 9, 2013