Days after director’s resignation, Rochester Civic Theatre finances under scrutiny

Just days after the Rochester Civic Theatre Company’s executive director abruptly resigned, city officials are raising questions about the institution’s finances.

They are particularly concerned about a $300,000 loan the theater took out in the fall of 2019 in part to cover payments to staff and professional actors and directors. Also of concern is a protracted delay in the theater’s return of $10,000 in unused grant money to the Southeastern Minnesota Arts Council.

The theater is among a handful of nonprofit organizations in Rochester, Minn., that receive city funding every year to maintain their buildings. A City Council oversight committee, established within the last two years, has put greater scrutiny on how those nonprofit organizations — like the Rochester Arts Center and the city’s senior center — spend their money.

In the 2019 budget year, the Civic Theatre received roughly $200,000 from the city of Rochester.

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“You can’t be taking the city’s money in one hand, and running up substantial external debts on another hand, because that’s a sure sign the city’s money is being used as collateral for a loan,” said City Council member Nick Campion.

News of the theater’s financial woes comes on the tails of a rebirth for the organization. In 2017, accusations of sexual harassment by the theater’s former executive director unraveled during a dispute between volunteer actors and board leadership.

City officials, including three City Council members who sit on the oversight board, only learned of the $300,000 loan in the lead-up to a meeting next week to review the theater’s finances and after pressing theater leaders for more details about how it is spending public money.

“It’s an indicator of an organization that’s in financial distress. And it’s something that as the public we deserve to know, as we’re considering whether or not you can deliver the services you tell us you can,” Campion said.

Civic Theatre board president Jeff Haynes said the loan was necessary. In the past two years, the theater, which previously relied almost exclusively on community volunteers to produce its shows, started hiring more professional actors and directors as a way to attract bigger audiences to the theater.

But it was also an expensive strategy.

“We were in a position where we needed to pay the people who work for us,” Haynes said. “It did raise some questions with the board. Not too long after that, we began a very intensive look at our strategic business model.”

Disclosure of the loan came days after the Civic Theatre’s executive director, Kevin Miller, abruptly resigned after just under two years on the job.

Miller was tapped to lead the organization at a troubled time for the theater, seven months after accusations of sexual harassment were leveled against the theater’s former executive director, Gregory Stavrou. At the time, many theater volunteers had abandoned the organization amidst a separate dispute with the theater’s board.

In a statement Friday after Miller’s departure became public, Civic Theatre officials said he had made the decision to leave, to spend more time with his family in Wisconsin. Miller did not return MPR News’ phone calls.

Net loss and a substantial loan

The oversight committee plans to highlight the Civic Theatre’s finances — and specifically the $300,000 loan — at its meeting Tuesday.

Oversight committee member Shaun Palmer said city officials are meant to be alerted to these sorts of business decisions when they happen.

“I’m very concerned,” he said, “[about] just the lack of transparency and the lack of being forthright about it.”

According to documents filed with the city, the theater had a net loss of roughly $461,000 in the 2019 fiscal year which ran from August 2018 to July 2019. So far, the theater reports $97,000 in net income for the current fiscal year, which ends in July 2020.

The theater received a $200,000 private anonymous donation at the beginning of this year to help cover its expenses, Haynes said.

Also of concern to city officials is a $10,000 grant from the Southeastern Minnesota Arts Council. According to a letter from the council, the Civic Theatre informed SEMAC in August that the project it had intended to use the grant money for never happened. SEMAC then instructed the theater ro return the grant money.

The letter, sent earlier this month from SEMAC executive director Robin Pearson to Miller at the Civic Theatre, lays out a timeline in which the theater failed repeatedly throughout the fall and early winter to pay the money back. According to the letter, a check for $10,000 was eventually hand-delivered to SEMAC’s Rochester offices on Jan. 8.

As a consequence, the theater will not be eligible for additional grants from SEMAC, the Minnesota State Arts Board or any other regional arts council for a year.

Pearson declined to comment on the situation because, she said, the theater hasn’t responded to the letter.

Haynes, who took over as president of the theater’s board in January, said he was unaware of the SEMAC grant situation until he was named board president. He said the theater plans to appeal the arts council’s decision.

Kay Hocker, Haynes’ predecessor as board president, is also a regional manager for Minnesota Public Radio in Rochester. She declined to comment on the theater’s finances, saying she is no longer spokesperson for the organization.

A closer look at theater finances

Haynes said the Civic Theatre’s board was aware of — and approved of — the $300,000 loan last fall.

But he said the loan request prompted the board to take a closer look at the Civic Theatre’s finances.

Since Miller was made executive director, the theater has boasted several sold-out shows, some of which included paid actors and directors, a departure from earlier seasons, in which it relied heavily on volunteers and community talent.

But Haynes said the board’s assessment revealed that paid talent was contributing to the theater’s budget woes.

“We were spending more money than we were raising,” Haynes said. “Our capacity is fixed, and therefore our revenue, to some extent, is fixed. And when we start spending more money on shows, the burden falls pretty squarely on our ability to raise money outside the normal operating revenue of the show.”

Haynes said that the promise of a large private donation at the beginning of 2019 that never materialized contributed to the theater’s financial burden that fiscal year.

Going forward, he said, the theater has plans to reconfigure its business model and has instituted new controls over spending. Among them: More board members are now more involved in spending decisions.

And Haynes said it’s likely they will be hiring fewer professional actors and other theater professionals for upcoming performances.

‘Significant concerns with … long-term sustainability’

In documents posted to the city’s website ahead of Tuesday’s oversight meeting, it appears that city officials will also be discussing the theater’s future. A note at in the meeting’s agenda explains:

“From the city administrator’s perspective, there are significant concerns with the Civic Theatre’s financial condition and its long-term sustainability. Additional analysis is necessary prior to making any formal recommendations. A new model for performing arts services may need to be evaluated for the space currently exclusively leased to the Civic Theatre.”

For his part, City Council member Shaun Palmer said he may advocate for pulling funding altogether.

“They have a responsibility to be prudent with our dollars,” he said. “We need to look at that and find out if this is a group we want to fund or not fund. Just because we’ve funded something in the past doesn’t mean we are going to fund it again.”

Document: Southeastern Minnesota Arts Council letter to the Rochester Civic Theatre Company

Documents: Agenda and document packet for Tuesday’s Outside Agency Oversight Committee meeting

Correction (Jan. 30, 2020): Due to an editing error, an earlier version of this story misstated the timing of Kay Hocker's tenure as board president. The story has been updated.