Despite Red Flags and Financial Irregularities, City Committee Supports Mayor’s Controversial Bailout of Madison Ice, Inc.

Key Points

• The City's Economic Development Committee supports approval of Mayor’s proposal to bail out Madison Ice, Inc.

  
  

• Madison Ice, Inc. has a history of financial mismanagement, and their claims of financial hardship due to COVID-19 are contradicted by their federal tax returns.

  
  

• There is no evidence that Madison Ice, Inc. has ever developed a capital improvement plan or established a sinking fund to cover future capital expenses.
  

• The mayor directed staff to work exclusively with Madison Ice, Inc., despite their history of default, consistent surpluses, financial irregularities, and failure to plan.

  
  

• Staff dismisses viable alternatives, presenting the mayor's proposal as a false choice between the bailout or closing the ice arenas and displacing users.

At their December 18 meeting, the city's Economic Development Committee considered the mayor's proposal to bail out Madison Ice, Inc., forgiving $1.6 million in debt plus accrued interest, and authorizing the sale of the arenas for $1 (Legistar ID 86169). After a public hearing, a presentation by Michael Mikolajewski, Director of Economic Development for the city, and deliberating on the mayor's proposal, the committee voted to recommend approval to the common council with three changes: 1) long-term leases are preferred to a fee simple sale, 2) Madison Ice, Inc. and the East Madison Ice Collective are to provide the city with audited financial statements, and 3) the arenas must be owned or leased by a nonprofit. The following are the written comments I submitted to the Committee.

Madison Ice, Inc.'s federal tax returns reveal consistent surpluses in six of the last seven years, including during the COVID-19 pandemic, contradicting their claims of financial hardship. Over this period, the total surplus amounts to $956,898. In 2024, expenses were adjusted to reflect $216,958 in capital expenses depreciated over seven years per GAAP and IRS requirements, reducing annual expenses by $185,964. This adjustment results in a $142,220 surplus instead of a reported $43,744 loss.

I understand that the Committee will review the proposal to forgive $1.6 million in unpaid debt plus accrued interest owed by Madison Ice, Inc. (MII), and to authorize the sale of the Madison Ice Arena and Hartmeyer Ice Arena for $1 each. As a concerned resident of District 5, a past user of the arenas, and with the knowledge of how the programs offered at the arenas can change lives, I am concerned that the Committee will make a decision on this proposal without important information that is missing, and a complete understanding of all of the options they have beyond what is presented in the resolution and staff’s presentation.

This proposal represents a significant financial decision—one that not only involves taxpayer dollars but also valuable public assets, In addition, the evidence shows this is not a sustainable long-term solution. We must create a solution that will: a) continue to provide services to ice arena users without interruption, b) better meet the long-term needs of the skating community and the public interest, and c) cost taxpayers less. To do this, it is critical that the Committee ensure all relevant information is considered, and that the process to solve this issue is open, transparent, and inclusive.

Important Information Missing

There is important information that has not been presented to the Committee or the public needed to justify this bailout and to assess if the current proposal is sustainable:

1. A thorough and objective review of MII’s financial performance over the past six years, including MII’s audited financial statements and tax returns for the last six years. Despite their claims of financial hardship due to COVID-19, evidence shows that MII has consistently realized significant surpluses. According to MII’s federal tax returns and financial information they provided to the city:

   Over the past six years, MII has had a cumulative surplus of $789,560. Their narrative that COVID-19 severely impacted operations is inconsistent with the data, which demonstrates that their revenues remained stable, and operations were profitable.

   
   

   This inconsistency raises questions about MII’s transparency, their claims of financial need, and the justification for forgiving $1.6 million in debt. Before approving any deal, the Committee should request a detailed analysis of MII’s financial performance to ensure accurate and honest reporting.
   

2. An independent appraisal to determine the market value of the properties, which include a total of seven acres of land. Understanding the properties’ market value is essential to evaluating the fairness of the proposed transfer and ensuring the public interest is protected.
   

3. A clear explanation of the city’s legal rights under the land contracts, including foreclosure and receivership.
   

4. A thorough and objective analysis of the pros and cons of the alternatives, including initiating foreclosure, appointing a receiver, conducting a feasibility study and needs analysis, and issuing an RFP for other proposals.
   

5. A thorough and objective evaluation of whether mismanagement contributed to MII’s financial problems. They have required financial assistance three times between 2011 and 2021. This raises concerns about their ability to manage the arenas effectively. Of the nine ice arenas in the area (excluding the two on the UW campus), seven are managed by nonprofits, none of which have required similar bailouts. This comparison suggests that better management practices may be possible, and continuing this relationship may not be in the city’s best interest.
   

6. Information about who the primary users of these arenas are and where they reside. For example, of the 13 board members and donors listed on the East Madison Ice Collective website, only one resides in the City of Madison. This raises questions about who benefits from this financial assistance.
   

7. An assessment of whether the $3 million the East Madison Ice Collective plans to raise is sufficient. Tom Groth, a founder of East MII, and a former board member, estimates that it could take twice as much to address deferred maintenance and prepare Hartmeyer Ice Arena for the next 10-20 years.
   

   There is no evidence that MII or the East Madison Ice Collective (EMIC) has had either arena inspected by an architect or mechanical engineer since MII bought them in 2004 to prepare accurate estimates for the deferred maintenance needs or prepare a long-term capital plan, raising further questions about the validity of their financial projections and the sustainability of this solution. This failure to follow basic best practices in facility management is a red flag that also calls into question the ability of MII and EMIC to manage the arenas responsibly.
   

8. A review of MII’s financial reporting practices. The material evidence shows that MII is not depreciating capital expenses in accordance with Generally Accepted Accounting Principles (GAAP), published by the Financial Accounting Standards Board (FASB). According to GAAP, capital improvements and repairs must be capitalized and depreciated over their useful life, rather than fully expensed in the year incurred.

   
   

   • MII provided the city with an Excel spreadsheet titled, “May 2023 - April 2024 Actual Revenue & Expenses,” showing revenues of $1,006,659, expenses of $807,089, and a net surplus of $199,570. However, it includes $216,958 in “Capital Improvements/Repairs,” such as chiller equipment replacement, resulting in a deficit of -$17,388.

     
     

   • MII’s federal tax return for the same period (year ended April 30, 2024) reports total revenues of $1,358,196, total expenses of $1,401,940, and a net deficit of -$43,744. If $216,958 in capital expenses were depreciated using the straight-line method over a seven-year period, as required by GAAP, this would reduce the annual expense by approximately $185,964 ($216,958 ÷ 7 years = $30,994), resulting in a surplus of $142,220, not a loss of -$43,744.

     
     

   This discrepancy raises significant concerns about transparency and accurate financial reporting. According to the Internal Revenue Service (IRS):

“Capital expenditures must be capitalized and depreciated over their useful life. Immediate deduction of capital improvements is not permitted under standard accounting rules.”

The failure to follow GAAP principles masks MII’s actual financial performance, creating the appearance of deficits when, in reality, they may be realizing surpluses. These inconsistencies must be addressed to ensure that the Committee and the public have an accurate understanding of MII’s finances before approving any debt forgiveness or asset transfers.

Slow Down: Missing Information Prevents A Better, More Sustainable Solution

The proposal creates a false sense of urgency by claiming that immediate fundraising is needed to make critical repairs and keep the rinks operating. However, this dilemma was created by MII—not the city—through years of mismanagement and failure to adequately plan for maintenance and repairs. It is unreasonable to shift the burden of this problem to taxpayers when MII and its donors should be responsible for paying for work to address any immediate needs.

While the current schedule, with the Council considering the resolution on January 14, provides more time than the original 14-day approval timeline, it remains inadequate given the significant missing information needed to consider the policy questions the current proposal raises. The city should not rush into forgiving debt or transferring public assets under the guise of urgency, especially when better more sustainable alternatives and solutions have not been fully explored and there are serious and legitimate concerns about the sustainability of the current proposal.

A False Choice Versus A Sustainable Long-Term Solution

By directing staff to work exclusively with MII, the mayor has framed this resolution as the only viable solution: approve this deal or face foreclosure, closing the arenas, and displacing the users—leaving skaters, hockey players, and other users homeless. This is a false dilemma.

Once the committee has the missing information, you should consider solutions that: a) continue to provide services to ice arena users without interruption, b) better meet the long-term needs of the skating community and the public interest, and c) cost taxpayers less.

A Sustainable Solution That Best Serves User Needs and the Public Interest

To identify the solution that best serves the long-term needs of the skating community and the public interest, that is financially sustainable, and does not rely on ongoing public subsidies, the Committee should consider a resolution that recommends to the Common Council that:

1. Consideration of this resolution is deferred until a thorough and objective staff report is completed.
   

2. Strict foreclosure is initiated, and a receiver is promptly appointed (at the seller’s expense per the land contracts) to manage the arenas on an interim basis to ensure continued operations and proper oversight.
   

3. Once the staff report is completed, consider solutions that best meets the long-term needs of the skating community and the public interest; and cost taxpayers less.
   

Leadership Requires Due Diligence—Not Blind Approval

This is not about closing the arenas; it’s about ensuring a thoughtful, informed decision that protects taxpayer interests, ensures public assets are managed responsibly, and provides the best possible outcome for the skating community.

Given the age of these facilities, the size of this bailout, the value of the properties, the lack of a competitive process, and the presence of state-of-the-art ice arenas in surrounding communities, I urge the Economic Development Committee to reject this proposal and recommend to the council they pursue this course of action.

The financial performance of MII must be thoroughly examined. Their consistent surpluses, failure to properly depreciate capital expenses, and misleading claims about COVID-19 impacts call into question the necessity of this bailout.

The Committee has an opportunity to show leadership by demanding due diligence and transparency. Rushing this proposal through without adequate information undermines public trust, risks setting a harmful precedent, and further enables a business model that has proven to be unsustainable.

By rejecting this proposal and recommending the Council pursue this alternative course of action, the Committee can ensure that decisions about these public assets are made transparently, competitively, and in the best interests of taxpayers and arena users. Rushing to approve this resolution without exploring other solutions sets a dangerous precedent. Leadership means taking the time to get this right.

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© Alex Saloutos 2024.