The Royal Conservatory of Music has negotiated a deal with the Ontario government that significantly reduces the principal amount owing on an onerous multimillion-dollar loan while still keeping the loan on government ledgers.
Word of the agreement, reached Aug. 26 between the RCM and Infrastructure Ontario, a Crown agency, was announced quietly Friday afternoon. The conservatory had been seeking some form of debt relief from IO for more than three years but it's only been in the past 11 or 12 months that those discussions intensified.
What made the deal a necessity for the RCM was the steady year-by-year hike in its loan payment to IO. While the conservatory never failed to meet its annual obligation, it grew increasingly concerned that stepped-up payments would "challenge" the sustainability of its programs, services and future plans. In 2015 alone, it paid IO $4.5-million against an annual budget of about $46-million – putting "money where we [didn't] want to put it," as RCM president Peter Simon said in a brief interview.
IO has had the conservatory on its "watch-list" since at least early 2014 while the Auditor-General, in her report for that year, said the RCM had made "aggressive assumptions about donation revenues that have not materialized to date."
The new deal, in effect, supersedes an $83.625-million loan the conservatory obtained from IO in May of 2010, repayable over 20 years, to help meet costs related to construction of the $143.5-million Telus Centre for Performance and Learning. Opened in 2009, the centre includes the acclaimed concert space Koerner Hall plus numerous enhancements and additions to the 135-year-old McMaster Hall, the RCM's downtown home on Bloor St. West since 1963.
According to sources, the principal on the loan before the latest round of negotiations started was $82.4-million. With the Aug. 26 restructuring, that principal has been reduced by $30-million, or 36 per cent, to $52.4-million. Half of the $30-million is coming from an "absorption" by the Ontario government, with the balance, already raised and forwarded, an "upfront contribution" courtesy of RCM donors. Meanwhile, the restructuring gives the conservatory 31.5 years to extinguish the loan.
No details on repayment schedules and interest were provided. (Historically, IO rates have been lower than or comparable to those offered by a typical commercial bank. The RCM's Mr. Simon said the interest charged in the new deal is "better" than what IO had levied.) However, to ensure compliance with the new arrangement, the conservatory has to submit a five-year plan "to demonstrate its capacity to meet the scheduled payments" as well as provide an audited annual statement and pay a government-appointed independent third party "to monitor and provide regular reports on their progress."
The conservatory, which gained its autonomy from the University of Toronto's Faculty of Music in 1991, is not a Crown agency like the Royal Ontario Museum or a transfer-payment recipient like the Art Gallery of Ontario.
But in the spring of 2007, the McGuinty Liberal government, by order-in-council, agreed that the IO loan program, created in 2003 mainly to assist municipalities, could be accessed by the conservatory as part of a larger initiative "to provide infrastructure lending … to not-for-profit sectors that benefit the public." In July that year, the RCM received an unspecified IO loan, to be amortized over 10 years, for the Telus complex. (Later, as plans changed and costs increased, the loan grew and the pay-off period extended to 20 years.)
Mr. Simon said he was "really thrilled" by the restructuring and the support of the Ontario government. "We're able to put money into expansion and the development of new programs and growth," including a "fairly significant investment in making [the] transition to digital." He added that the RCM would soon announce a new chairman of its board of directors, replacing former TD Bank executive Michael Foulkes.
Tourism, Culture and Sport Minister Eleanor McMahon said in a statement the restructuring agreement recognizes the RCM's stature as "Canada's largest music and arts education institution" and its contributions to Ontario's multibillion-dollar cultural sector. "We are committed to working with its leadership to ensure that it is placed on a sustainable path forward."