Sharp course correction moves Colonial Williamsburg away from financial undoing

Mitchell Reiss painted a dire portrait Thursday of Colonial Williamsburg’s future.

As its president, Reiss came to Colonial Williamsburg in October 2014 with the charge of turning its flagging fortunes around. Under his watch, it has implemented various programs with varying levels of support – such as starting a musket range, putting an ice skating rink in Merchants Square, and introducing a mascot.

Colonial Williamsburg has also invested tens of millions of dollars in its programming, as well as restoring and remodeling places such as its arts museums, Williamsburg Inn, Golden Horseshoe Golf Club and The Spa of Colonial Williamsburg.

But in some ways, Colonial Williamsburg’s predicament is of its own making, Reiss and members of the Rockefeller family said.

Reiss, working with the Board of Trustees, senior management and outside advisors, spent six months working on a restructuring plan that the board endorsed at its April meeting.

“Ultimately, doing nothing or continuing business as usual would mean the end of this special place and our mission,” Reiss said Thursday in his presentation to foundation employees.

The plan to is not business as usual: Reiss announced the layoff of 71 people, and the departure of another 262 people on the foundation’s payroll when contractors take over golf operations, product and retail management, landscaping and facilities management. The move will leave Colonial Williamsburg with slightly fewer than 2,100 employees.

In a further acknowledgment of the foundation’s troubles, Reiss said the Kimball Theatre will close July 6, and Colonial Williamsburg will seek tax relief from the localities in which it does business — the city of Williamsburg, and James City and York counties.

If the measures aren’t taken, Reiss said in an interview, Colonial Williamsburg will exhaust the portion of its endowment money available for operations. Despite having a $682 million endowment, only $365.2 million is available in 2017 for operations. If things don’t change, by 2025, the foundation would have spent all but $12 million of that endowment and would have a negative balance by 2026, he said.

“We probably would run out of money well before then,” Reiss said, citing a graph he presented to employees. “because that graph assumes that the donors are going to continue to give us money at the same rate they have in the past. And at some point, we know that that’s not going to happen. Nobody is going to continue to subsidize us if we can’t manage our own finances better.”

The foundation lost $54 million in operations in 2016 and $277 million in the past five years, according to a fact sheet made public by Colonial Williamsburg.

In 2016, the foundation said it paid $17 million in debt service payments on debt of more than $300 million, with more payments coming due soon, Reiss said in his letter to the Colonial Williamsburg community. He said the foundation compounded annual operating losses, by borrowing heavily to improve its hospitality facilities and visitor’s center leading up to Jamestown’s 400th anniversary in 2007. Reiss said the foundation did not get an adequate financial return on those investments.

The foundation’s 2016 annual report made public last week shows the organization collected revenues of $229 million, $4 million above 2015 totals. Operating revenues — inclusive of admission ticket sales, hotel and restaurant revenues, retail sales and rental of commercial and residential real estate in and around the Historic Area — were $2 million lower than in 2015, due to a 6 percent decline in merchandise revenue.

Though the foundation has seen $10.4 million in savings over the past two years, taking these measures now, Reiss said, puts the foundation on a path to financial stability within 18 months.

Virginia State Sen. Majority Leader Tommy Norment, R-James City, a member of the Colonial Williamsburg Foundation board of trustees, said in a prepared statement that many factors have contributed to the foundation’s financial challenges.

“The task now is to look to the future, leading with a renewed commitment to the foundation’s core mission,” Norment said.

Looking for relief

In an interview Thursday, Reiss said the foundation is responsible for more than 8,000 jobs and $500 million in economic activity yearly.

“We have been extremely generous over the decades in supporting other charities and non-profits in the community,” Reiss said. “We have been a good neighbor, and today is a day when we need help from our neighbors, from the community.”

Reiss hopes that help will come from the city of Williamsburg, as well as James City and York counties, in the form of relief of real estate taxes and some of the license fees for the next three years. He said he would send a letter Friday formally asking for the tax relief that would allow Colonial Williamsburg to stabilize itself.

The savings for Colonial Williamsburg “would be significant,” Reiss said.

Colonial Williamsburg owns 302 properties in Williamsburg, with a value of more than $200 million dollars, according to Williamsburg property records. It owns 11 properties in James City County worth $8.3 million, according to James City County property records. Most of that property is on Pocahontas Trail, according to Paul Holt, county planning director. In York County, Colonial Williamsburg owns 25 properties worth about $4.5 million.

Reiss also said he will entertain offers for the Kimball Theatre, which is slated to close July 6.

“I very much hope that somebody will come forward to lease it and continue to run it as a theater,” Reiss said. “And if somebody wants to buy it, we’d love to entertain that also.”

In his letter to the Colonial Williamsburg community, Reiss said a key reason the foundation loses significant amounts of money every year is the business decisions that have been made in the past.

Three members of the Rockefeller family, while expressing their support for the changes, cited a similar reason for launching the Colonial Williamsburg Company in the 1980s, which created a for-profit enterprise that now manages stores, hotels, golf courses and restaurants as altering the financial structure of the foundation.

“This ambitious and good-faith effort has not reaped its intended benefits, and pressures on financial resources were aggravated by the recession (of 2007),” the Rockefellers wrote in their letter. “The financial issues also became a distraction from the foundation’s mission of historic preservation and civic education.”

Reiss said the foundation looked at selling off its commercial assets, and said they looked “at a dozen different options” but felt it was best to outsource, rather than sell them off or maintain the status quo in order to be financially stable by 2019. Outsourcing, he said, would allow Colonial Williamsburg to refocus on its core educational mission.

“This is back to basics. This is what we do better than anybody else, not running retail, or running hotels or restaurants,” Reiss said. “Education and history is what Colonial Williamsburg is all about from the very beginning. That’s what we’re going to focus on like a laser going forward.”

Wary of proposed tax changes

The city of Williamsburg is considering raising its meal tax and room tax from 5 percent to 7 percent. City Council may also choose to levy a new admissions tax that could be as high as 7 percent. If passed, the new tax revenue would go to a tourism development fund to finance new tourism projects in the city.

Increases in the room and meal tax and a new admissions tax would all directly affect patrons heading into Colonial Williamsburg. For many years, Colonial Williamsburg was the main tourism attraction for the city. In 1976, almost 1.3 million people visited.

Interest in the attraction has waned since then and the number of visitors has plateaued at around 600,000 over the last decade, accroding to annual reports. Reiss said in his Thursday presentation to employees that raising taxes on tourists do not make sense, and said the foundation’s tenuous finances were the reason the foundation explored the idea of a fence around the Historic Area.

“This is why I strongly oppose a new admissions tax and increases in the meals and hotels taxes that would make our task even more difficult,” Reiss said in his presentation to employees Thursday.

LaRoue can be reached by phone at 757-345-2342.

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